AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 2001
REGISTRATION NO. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KAIRE HOLDINGS INCORPORATED
(Exact name of small business issuer as specified in its charter)
DELAWARE 8980 13-3367421
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer Identification No.)
incorporation or organization) classification code number)
-----------------------------
Steven Westlund
Chief Executive Officer
Kaire Holdings Incorporated
1429 South Robertson Blvd.
Los Angeles, California 90035
(310) 273-5181
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
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Copies to:
Thomas A. Rose, Esq.
Sichenzia, Ross, Friedman & Ference LLP
135 West 50th Street, 20th Floor
New York, New York 10020
(212) 664-1200
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Approximate date of proposed sale to public:
As soon as practicable after this registration statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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DOLLAR PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE
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Common Stock, $.001 par $384,000 $0.01 $384,000 $ 96.00
value, underlying the
convertible debenture (2)
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Common stock, $.001 par $ 15,000 $0.01 $ 15,000 $ 4.00
value, underlying
warrants (3)
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TOTAL $399,000 $100.00
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(1) Estimated solely for the purpose of determining the registration fee.
(2) Common stock issuable upon the conversion of a $300,000 8% convertible
note issued in connection with the August 17, 2001 financing.
(3) Common stock issuable upon the exercise of warrants issued in connection
with the August 17, 2001 financing.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
PROSPECTUS
_____, 2001
KAIRE HOLDINGS INCORPORATED
Up to $399,000 Worth Of Common Stock
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This prospectus relates to the resale by the selling shareholder of up to
$399,000 worth of our common stock. The selling shareholder may sell common
stock from time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions. The selling
shareholder is deemed to be an underwriter within the meaning of the Securities
Act of 1933. Please see the "Selling Shareholder" section in this prospectus
for a complete description of the selling shareholder.
Our common stock is quoted on the Over-the-Counter Bulletin Board under
the symbol "KAHI." On August 20, 2001, the closing price of our common stock
was $0.01 per share.
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This investment involves a high degree of risk. See the "Risk Factors"
beginning on page 5.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is complete or accurate. Any representation to the contrary is a
criminal offense.
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1
TABLE OF CONTENTS
Page No.
Summary of Information in the Prospectus 3
Risk Factors 5
Use of Proceeds 11
Price Range of Common Stock 12
Our Dividend Policy 12
Selected Financial Data 13
Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Our Business 18
Management 23
Executive Compensation 25
Certain Relationships and Related Transactions 27
Security Ownership of Certain Beneficial Owners and Management 28
Description of Securities 29
Shares Eligible For Future Sale 30
Selling Shareholder 31
Plan of Distribution 33
Legal Proceedings 35
Experts 36
Legal Matters 36
Other Available Information 37
Financial Statements 38
2
SUMMARY OF INFORMATION IN THE PROSPECTUS
This summary highlights selected information contained in this prospectus.
To understand this offering fully, you should read the entire prospectus
carefully. Please pay particular attention to the section entitled "Risk
Factors" and the section entitled "Financial Statements".
Unless otherwise indicated, this prospectus assumes that none of our
outstanding options or warrants have not been exercised into shares of our
common stock.
Headquartered in North Hollywood, California, Kaire's principle business is
providing specialized pharmacy care to seniors living in extended care
facilities and HIV patients.
Kaire principally has interests in four companies:
. YesRx
. Classic Care
. Stason Biotech
. NetFame (operations terminated)
YesRx
YesRx.com began operations in November 1999 as an Internet based pharmacy
that provided a full range of pharmacy services combined with over the counter
drug store products and extensive health related information and content
directed at the senior market segment. Kaire has recently scaled back its
YesRx.com e-commerce operations.
Classic Care Pharmacy
In 1997, Classic Care Pharmacy began operations as a provider of
specialized pharmacy care for retired seniors located throughout Los Angeles and
Orange Counties in California. Since that time, Classic Care has steadily
increased the number of facilities and patients it serves.
Stason Biotech
In May of 2000, Kaire signed a letter of intent with Stason USA, Inc,
which outlined a plan to merge our EZ-TRAC/IPS laboratory business with a
similar business of Stason's. The plan also called for the relocation of our
laboratory operations to Stason's facilities in Irvine, California. Kaire
completed the move of our laboratory business in May 2000 and have subsequently
integrated those operations with Stason's.
NetFame
In July 2000, Kaire acquired the rights to the domain name "NetFame.com."
Kaire purchased the netfame.com domain address with the intention of developing
an interactive online exchange to facilitate communication between the planned
subscriber base consisting of emerging actors, models, and musicians, with
established industry agents. However, due to current market conditions Kaire has
terminated the NetFame.com operations.
3
The Offering
This prospectus relates to the resale by the selling shareholder of (i) up
to $399,000 worth of our common stock issuable upon conversion of a convertible
note and (ii) 1,500,000 shares of our common stock issuable upon exercise of
warrants.
We currently have 174,942,407 shares of common stock outstanding.
Recent Financings
On August 17, 2001, we entered into a subscription agreement with The
Keshet Fund L.P. for the sale of (i) a $300,000 convertible note and (ii)
warrants to purchase 1,500,000 shares of our common stock.
The note bears interest at 8% and is convertible into our common stock at
the lesser of:
a) $0.0073; or
b) 80% of the average of the three lowest closing prices of our common
stock for the sixty trading days immediately prior to the conversion
date.
The unconverted portion of the note is due August 17, 2002.
The warrants have an exercise price of:
a) $0.011; or
b) 110% of the lowest closing price of our common stock for the ten
trading days prior to the exercise of the warrant.
4
RISK FACTORS
An investment in our securities involves a high degree of risk. In
addition to the other information in this prospectus, you should carefully
consider the following risk factors before investing in our securities. If any
of the following risks were to actually occur, our business would likely suffer.
Consequently, the price of our common stock could decline, and investors may
lose all or part of their investment in our common stock.
Risks Relating to our Business:
We Have A Limited History Of Owning And Operating Our Acquired Businesses On A
Consolidated Basis, Which Could Result In Ineffective Management Of These
Businesses.
Since 1986, we have changed our business focus on several occasions. The
most recent change occurred in May of 2000, when we focused our resources on the
specialty pharmacy sector of the prescription drug business. Prior to this
date, Kaire operated as a general retail online pharmacy, marketing and selling
a wide array of prescription medications to the public through its YesRx.com
website. Therefore, you should take into account the fact that Kaire has less
than one year of operating history and experience in its core specialty pharmacy
business.
We Expect to Incur Losses for the Foreseeable Future and Continued Losses Could
Result in our Inability to Fund Business Operations and Cause our Stock Price to
Decline.
We have incurred consistent quarterly net losses. Further, we cannot
guarantee our current business will continue to generate profits in the future.
Here is a list of some of the factors that may affect the future profitability
of our business:
. It is likely that we will have to allocate significant cash flow to
marketing efforts to acquire new customers.
. There is a national shortage of pharmacists, which may necessitate
higher professional personnel costs.
. Traditionally, the profit margins on many of the products we sell are
low. In many cases, gross margins may be as low as 2-3%. Therefore, if
a substantial portion of our revenue base includes low margin products,
the profits from other high margin products may be negated altogether.
. In the past, we have allocated significant portions of our operating
profits to pay debt. If this pattern continues, our net profits may be
affected.
. Traditionally, there is a difference in time between when we have to
pay our suppliers for product and the time we get paid from our
customers. This pattern often causes us to carry significant amounts of
our revenues as accounts receivable. If we have difficulty collecting
these receivables, then we may have to allocate our operating profits
to pay suppliers, which may result in our net profits being partially
or entirely eroded.
We May Not be Able to Obtain Sufficient Capital to Fund our Operations and, as a
Result, We May Cut Back or Discontinue Operations or Limit our Business
Strategies.
While we will need significant additional capital in the near future, we
may be unable to obtain funding for our operations on favorable terms, or at
all. If adequate funds are not available, we may be required to cut back or
discontinue one or more of our product introductions, sales, marketing or
5
distribution programs or plans; or reduce operating expenses, or attempt to
obtain funds through strategic alliances that may require us to relinquish
rights to one or more of our technologies or products.
Our future capital requirements will depend on many factors, including:
. the progress of our product introductions, sales, marketing and
distribution efforts;
. the scope and results of clinical trials related to our products;
. the progress in filing for and obtaining regulatory approvals;
. the rate of technological advances;
. the market acceptance of our products;
. the levels of administrative and legal expenses; and
competitive products.
. Current negotiations concerning the restructuring of the debt owed
Classic Care shareholders.
In addition, future financing may be increasingly difficult to obtain due
to such factors as our limited operating history and results, the level of risk
associated with our business and business plans, increases in our vulnerability
to general economic conditions, and increased stockholder dilution. Debt
financing, if available, may have several negative effects on our future
operations, including:
. a portion of our cash flow from operations will be dedicated to payment
of principal and interest and this would reduce the funds available for
operations and capital expenditures;
. increased debt burdens will substantially increase our vulnerability to
adverse changes in general economic and competitive conditions; and
. we may be subject to restrictive debt covenants and other conditions in
our debt instruments that may limit our capital expenditures, limit our
expansion or future acquisitions, and restrict our ability to pursue
our business strategies.
We Depend On Key Employees for our Success and the Loss of our Key Employees
Could Limit our Success.
Our executive team consists of the following persons: Kaire CEO Steven R.
Westlund, Kaire President Mark L. Baum, and Classic Care President Joel
Rubenstein, as well as our Health Advocate team and technical staff. These
persons provide us with a unique service resulting from their special knowledge,
business skills, and established business relationships that materially benefit
us. If one of more of these persons were to leave us, we may not be able to
replace their services, and the business could be materially and adversely
affected. Therefore, we are highly dependent upon the continued services of
these individuals. To date, we have not sought to obtain any key man life
insurance coverage insuring the life of any of these persons. We do not
anticipate obtaining such coverage in the foreseeable future.
Intense Competition In Specialty Pharmacy Business Could Prevent Us From
Increasing Or Sustaining Revenues Or Achieving Or Sustaining Profitability.
We may not be able to effectively compete in our businesses due to the fact
that many of our competitors are better-financed companies that possess greater
access to necessary resources, and who have been in the specialty pharmacy
business for a significantly longer period of time than us.
6
Some of our competitors in the specialty pharmacy business are:
. CVS ProCare
. Priority Pharmacy
. Walgreens
. Rite-Aid
Although we are attempting to establish ourselves as a provider of
specialized pharmacy care products and services to selected niche markets, no
assurance can be given that our competitors will not use their many advantages
over us, and more directly pursue the customers we are attempting to acquire and
those who we have already acquired. As previously discussed above, these
competitors may have greater financial resources, stronger management resources
and a better ability to enhance their share of the market.
We cannot provide investors with any assurances that our competitors will not
gain greater market share at our expense, and if they do, that could adversely
affect our business and operating results.
Funding For Our Capital Needs Is Not Assured, And We May Have To Curtail Our
Business If We Cannot Find Adequate Funding.
Although we are exploring the possibilities of additional financing with
the Laurus Master Fund, Ltd., we currently have no legally binding commitments
with any third parties to obtain any material amount of additional equity or
debt financing. We cannot assure you that we will be able to obtain any
additional financing in the amounts or at the times that we may require the
financing or, if we do obtain any financing, that it would be on acceptable
terms. As a result, we cannot assure you that we will have adequate capital to
implement future expansions and enhancements of our wireless technology, to
maintain our current levels of operation or to pursue strategic acquisitions.
Our failure to obtain sufficient additional financing could result in the delay
or abandonment of some or all of our development, expansion and expenditures,
which could have an adverse effect on us and on the value of our common stock.
We Have Tangible Net Worth Deficit And A Going-Concern Qualification In Our
Certifying Accountant's Financial Statement Report, Either Or Both Of Which May
Make Capital Raising More Difficult And May Require Us To Scale Back Or Cease
Operations.
We have a net worth deficit as of our latest balance sheet date. This
deficit indicates that we will be unable to meet our future obligations unless
additional funding sources are obtained. To date we have been able to obtain
funding and meet our obligations in a timely manner. However, if in the future
we are unsuccessful in attracting new sources of funding then we will be unable
to continue in business. In addition, the report of our auditors includes a
going concern qualification which indicates an absence of obvious or reasonably
assured sources of future funding that will be required by us to maintain
ongoing operations. To date we have successfully funded Kaire Holdings, Inc. by
attracting additional equity investments and small issues of debt. We believe
that our ongoing efforts will continue to successfully fund operations until
positive cash flow is attained. However, there is no guarantee that our efforts
will be able to attract additional necessary equity and/or debt investors. If
we are unable to obtain this additional funding, we may not be able to continue
operations.
Risks Relating to our Stock:
The Lack of a Mature Trading Market for our Common Stock May Cause our Stock
Price to Decline Significantly and Limit the Liquidity of our Common Stock.
7
We do not meet the listing requirements for the listing or quotation of our
common stock on any national or regional securities exchange or on Nasdaq.
Currently, our common stock is traded on the Over-The-Counter Bulletin Board. As
a result, accurate current quotations as to the value of our common stock are
unavailable making it more difficult for investors to dispose of our common
stock. The lack of current quotations and liquidity can cause our stock price to
decline or to trade lower than the prices that might prevail if our securities
were listed or quoted on an exchange or on Nasdaq.
Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the
Trading Market in our Securities is Limited, Which Makes Transactions in our
Stock Cumbersome and May Reduce the Value of an Investment in our Stock.
Since our common stock is not listed or quoted on any exchange or on
Nasdaq, and no other exemptions currently apply, trading in our common stock on
the Over-The-Counter Bulletin Board is subject to the "penny stock" rules of the
SEC. These rules require, among other things, that any broker engaging in a
transaction in our securities provide its customers with a risk disclosure
document, disclosure of market quotations, if any, disclosure of the
compensation of the broker and its salespersons in the transaction, and monthly
account statements showing the market values of our securities held in the
customer's accounts. The brokers must provide bid and offer quotations and
compensation information before making any purchase or sale of a penny stock and
also provide this information in the customer's confirmation. Generally, brokers
may be less willing to execute transactions in securities subject to the "penny
stock" rules. This may make it more difficult for investors to dispose of our
common stock and cause a decline in the market value of our stock.
There are a Large Number of Shares Underlying our Convertible Notes, Warrants
and Options That May be Available for Future Sale and the Sale of These Shares
May Depress the Market Price of our Common Stock.
As of August 1, 2001, we had 174,942,407 shares of common stock issued and
outstanding, notes outstanding that are convertible into 153,799,452 shares of
common stock at current market prices, and outstanding warrants and options to
purchase 15,956,667 shares of common stock. In addition, the number of shares
of common stock issuable upon conversion of the outstanding convertible notes
and debentures may increase if the market price of our stock declines. All of
the shares, including all of the shares issuable upon conversion of the notes
and debentures and upon exercise of our warrants and options, may be sold
without restriction. The sale of these shares may adversely affect the market
price of our common stock. The issuance of shares upon conversion of the
convertible notes and debentures and exercise of outstanding warrants and
options will also cause immediate and substantial dilution to our existing
stockholders and may make it difficult to obtain additional capital.
Our Stock Price May be Volatile Due to Factors Beyond our Control Which Could
Subject the Value of our Shares to Rapid Decline.
The securities markets have from time to time experienced significant price
and volume fluctuations that can be unrelated to the operating performance or
financial condition of any particular company. This is especially true for
emerging companies like ours and for other companies in our industry. For
instance, stock prices can be significantly impacted by announcements of
technology innovations or new products by other companies, release of reports by
securities analysts or regulatory developments. Economic or other external
factors, as well as quarterly fluctuations in our or in our competitors'
operating results, also can have a significant impact on our stock price. For
example, during 2000, the closing bid price of our common stock quoted on the
Over-The-Counter Bulletin Board ranged from a low of $.0625 per share to a high
of $1.00 per share. We have experienced similar fluctuations in other periods.
8
The Issuance Of Additional Shares Of Common Stock In Connection With Our
Acquisition Of Classic Care, Inc. May Dilute Your Investment In Our Common
Stock.
On November 30, 2000, Kaire amended the purchase of Classic Care Pharmacy
letter of intent signed in June 2000. The amendment sets the purchase price at
$9,500,000 to be paid in a combination of cash and stock. The amended agreement
calls for an initial cash payment of $1,000,000 plus an additional $2,000,000 to
be paid in cash payments of $250,000 each beginning in March 2001 through
October 2001. The required amounts are to be funded through outside financing.
Thus far, $1,699,000 of the $3,000,000 has been paid. Kaire has issued
15,499,999 common shares as the initial stock portion of the amended agreement.
The value of the 15,499,999 shares is required to be no less than the balance of
the cash owed or at least $.42 per share in order to meet the target price of
$9,500,000. If the price of the stock is not equal to or greater than $.42 per
share during the period ended October 31, 2001, we will be required to issue
sufficient additional shares of common stock or pay additional cash to insure
that the total consideration paid for the acquisition is $9,500,000. The
additional stock must be issued or cash must be paid by November 30, 2001. If
these shares were to be issued at a current price of $.01, approximately
650,000,000 shares would be issued. In lieu of payment in stock, Kaire is
currently discussing alternate methods of payment with the shareholders of
Classic Care.
9
Information About Forward-Looking Statements:
This prospectus contains certain forward-looking statements, which involve
substantial risks and uncertainties. These forward-looking statements can
generally be identified because the context of the statement includes words such
as "may," "will," "except," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, this prospectus also contains
forward-looking statements about our future. Forward-looking statements include
statements about our Plans, Objectives, Goals, Strategies, Expectations for the
future, Future performance and events, Underlying assumptions for all of the
above, and other statements that are not statements of historical facts.
These forward-looking statements involve risks and uncertainties, which
could cause our actual results to materially differ from our forward-looking
statements. We make these forward-looking statements based on our analysis of
internal and external historical trends, but there can be no assurance that we
will achieve the results set forth in these forward-looking statements. Our
forward-looking statements are expressed in good faith and we believe that there
is a reasonable basis for us to make them.
In addition to other factors discussed in this prospectus, the following
are important factors that could cause our actual results to materially differ
from our forward-looking statements:
. Our ability to respond to changes in the marketplace
. Competitive factors
. The availability of financing on terms and conditions acceptable to us
. The availability of personnel with the appropriate technical skills
We have no obligation to update or revise these forward-looking statements
to reflect future events.
10
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling shareholder. We will not receive any
proceeds from the sale of shares by the selling shareholder. However, we will
receive proceeds upon the exercise of any warrants that may be exercised by the
selling shareholder.
11
PRICE RANGE OF COMMON STOCK
Our common stock trades on the Over-the-Counter Bulletin Board, under the
trading symbol "KAHI". The following table sets forth the quarterly high and low
bid prices per share for our common stock. The bid prices reflect inter-dealer
prices, without retail markup, markdown, or commission and may not represent
actual transactions.
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Low Bid High Bid
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Fiscal 1999
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First Quarter 1999 .02 .05
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Second Quarter 1999 .03 .16
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Third Quarter 1999 .08 .14
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Fourth Quarter 1999 .06 .14
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Fiscal 2000
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First Quarter 2000 .11 1.00
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Second Quarter 2000 .16 .60
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Third Quarter 2000 .13 .22
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Fourth Quarter 2000 .06 .30
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Fiscal 2001
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First Quarter 2001 .63 .22
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Second Quarter .02 .01
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Transfer Agent and Registrar
Kaire's transfer agent is New Jersey Transfer and Trust, 201 Bloomfield
Avenue, Verona, New Jersey 07044.
OUR DIVIDEND POLICY
Kaire anticipates that for the foreseeable future, earnings will be
retained for the development of is business. Accordingly, Kaire does not
anticipate paying dividends on the common stock in the foreseeable future. The
payment of future dividends will be at the sole discretion of Kaire's Board of
Directors and will depend on our general business condition.
12
SELECTED FINANCIAL INFORMATION
The information set forth below for the years ended December 31, 2000 and
1999, which is derived from our audited financial statements, and for the six
months ended June 30, 2001 and 2000, which is derived from our unaudited
financial statements, should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, including the notes thereto and other
financial information, appearing elsewhere in this registration statement.
Consolidated Statement of Operations:
Years Ended December 31, Six Months Ended June 30,
------------------------- ---------------------------
1999 2000 2000 2001
--------- ----------- --------- ----------
Revenues $ 259,545 $ 5,707,700 $ 788,844 $7,223,858
Cost of Goods 89,245 4,056,631 495,984 5,619,923
Gross profit 170,300 1,651,069 292,860 1,603,935
Net loss (472,537) (2,413,175) (533,598) (483,585)
Loss per share (0.01) (0.02) (0.01) (0.00)
Consolidated Balance Sheet Data:
As at December 31, As at June 30,
--------------------------- ------------------
1999 2000 2000
-------- --------- ---------
Total current assets 160,000 1,762,546 2,794,279
Total current liabilities 665,426 3,519,018 3,155,583
Total stockholders' equity (586,426) 7,171,164 8,035,718
(deficit)
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
Short-term Objectives:
. Continue the regional expansion of the Health Advocate Program.
. Continue the regional expansion of Classic Care's Business.
. Make acquisitions of strategic competitors.
. Develop strategic Joint Venture relationships.
. Execute a "Contract Management Agreement" with Stason Bio Tech.
Kaire recently made the decision to eliminate certain YesRx.com e-commerce
operations to focus more of its resources on its Classic Care and Health
Advocate operations. The decision was based on a number of factors including
the poor performance of the online retail pharmacy, the general slow growth
projections for the next few years, the high cost of customer acquisition and
retention and the ongoing costs associated with maintaining YesRx.com at a
competitive level. YesRx.com did expand its customer base of retail Internet
customers, however, that growth fell far below expectations. We anticipate that
these actions will reduce operating expenses with a nominal impact on revenues.
Going forward, YesRx.com will serve as a marketing and organizational platform
for the Health Advocate program.
Long-term Objectives:
. Expand the Health Advocate Program to a national level.
. Secure development products and business-opportunities for Stason
Biotech.
There is no expected or planned sale of significant equipment by Kaire.
Excluding any potential acquisition, our work force is expected to increase
at a rate equal to actual increases of our business operations.
Management is of the opinion that sufficient working capital will be
available from internal operations and from outside sources during the next
twelve months thereby enabling Kaire- to meet its obligations and commitments
as they become payable. Historically, Kaire has been successful in its efforts
to secure working capital from private placements of common stock securities,
bank debt, loans from private investors and the exercise of common stock
warrants.
14
Results of Operations
Six Months Ended June 30, 2000 Compared to June 30, 2001
For the six months ended June 30, 2001, revenues were approximately
$7,223,858 for an increase of $6,436,014, or 817%, from the same period in 2000.
The increase was due to the increased sales of Classic Care Pharmacy and the
Health Advocacy program. Note that the June 30, 2000 period includes just one
month of revenue from Classic Care Pharmacy operations. Classic Care's monthly
revenue run rate, increased by 40% from the periods ended June 2000 to June
2000.
Gross profit for products and services was $1,603,935 for the six months
ended June 30, 2001, an increase of $1,311,075, or 448% over the same period in
2000. The increase was due to the acquisition of Classic Care Pharmacy. The
decrease in gross margin percentage is a partially due to an increase in the
Aids Advocacy program sales which has an average margin percentage ranging from
seven to eleven percent.
Selling, general and administrative expense increased to $1,678,098 from
$587,943 for the six months period ended June 30, 2001 versus June 30, 2000.
The increase in selling, general and administrative expense was due to the
acquisition of Classic Care which accounted for $157,242 and increases in the
expenditures for Kaire Holdings' base businesses relating to consulting fees,
financing costs and compensation expenses.
Interest expense for operations for six month period ended June 30, 2001
was $31,533 compared to $14,544 for the comparable six month period in 2000. The
increase resulted from the issuance of new convertible debt.
No provision was made for Federal income tax since we have incurred
significant net operating losses from inception. Through June 30, 2001, we
incurred net operating losses for tax purposes of approximately $483,585. The
net operating loss carry forward may be used to reduce taxable income through
the year 2013. Our 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.
For Years Ended December 31, 2000 and December 31, 1999
Net revenue for the year ended December 31, 2000 was $5,707,700 as compared
to $259,545 for the same period in 1999, or an increase of $5,448,155 or 2099%.
The increase in net revenues was due to the inclusion of the third and forth
quarter revenues of Classic Care Pharmacy.
Gross profit for the year ended December 31, 2000 was $1,651,069 as
compared to $170,300 for the same period in 1999, or an increase of $1,480,769,
or 869%. This increase in gross profit was attributable to Classic Care
Pharmacy.
Selling, general and administrative expense for the period ending December
31, 2000 was $3,949,357 as compared $1,005,367 for the same period in 1999, or
an increase of $2,943,990, or 293%. Of this increase in selling, general and
administrative expense, approximately $685,000 was attributable to gross wages
for Classic Care Pharmacy and Kaire Holdings employees and $1,577,265 was
attributable to compensation expense relating to the grant of stock options
granted to employees and consultants. The remainder of the increase was
attributable to accounting, advertising, consultants,
15
printing and promotional materials for Classic Care Pharmacy and the Health
Advocate Program.
Interest expense was $32,506 for the year ended December 31, 2000 as
compared to $82,250 for the same period in 1999, or a decrease of $49,774. The
December 31, 2000 interest expense decrease is primarily a result of retiring
debt accounts incurred prior to fiscal year 2000, offset by interest incurred on
10% convertible notes issued in October of 2000.
Other income was $251,243 as compared to $457,309 for the same period in
1999, or a decrease of $206,066.
No provision was made for Federal income tax since we have incurred
significant net operating losses from inception.
Liquidity and Capital Resources
Our revenue has been insufficient to cover acquisition costs, cost of
revenues and operating expenses. Therefore, we have been dependent on private
placements of common stock, 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 our cash needs, or that a
sufficient amount of our common stock or other securities can or will be sold or
that any common stock purchase options/warrants will be exercised to fund our
operating needs.
June 30, 2001
On June 30, 2001, we had assets of $12,951,840 compared to $11,635,029 on
December 31, 2000. Our total stockholders' equity of $8,032,718 on June 30,
2001 compared to an equity of $7,171,164 on December 31, 2000, an increase of
$1,313,812.
As of June 30, 2001, our working capital position increased $1,395,168 from
a negative $1,756,472 at December 31, 2000 to a negative $361,304, primarily as
a result of increase in accounts receivable of $610,950, inventory of $364,732,
prepaid consulting of $364,506 plus a decreases in notes payable -acquisition of
$226,000, accounts payable of $105,247
On November 30, 2000, Kaire amended the purchase of Classic Care Pharmacy
letter of intent signed in June 2000. The Amendment sets the purchase price at
$9,500,000 to be paid in a combination of cash and stock. The Amended Agreement
calls for an initial cash payment of $1,000,000 plus an additional $2,000,000 to
be paid in cash payments of $250,000 each beginning in March 2001 through
October 2001. The required amounts are to be funded through outside financing.
Thus far, $1,699,000 of the $3,000,000 has been paid. Kaire has issued
15,499,999 common shares as the initial stock portion of the Amended Agreement.
The value of the 15,499,999 shares is required to be no less than the balance of
the cash owed or at least $.42 per share in order to meet the target price of
$9,500,000. If the price of the stock is not equal to or greater than $.42 per
share during the period ended October 31, 2001, we will be required to issue
sufficient additional shares of common stock or pay additional cash to insure
that the total consideration paid for the acquisition is $9,500,000. The
additional stock must be issued or cash must be paid by November 30, 2001.
Kaire intends to pay the balance of this liability through equity
fundraising and by using profits from Classic Care Pharmacy. Should either of
these sources of funds fail to produce adequate capital for the payment of the
Classic Care liability, it is possible that Kaire may have to sell Classic Care
Pharmacy in order to pay off this debt.
16
December 31, 2000
On December 31, 2000, we had assets of $11,635,029 compared to $160,000 on
December 31, 1999. We had a total stockholder's equity of $7,171,164 on
December 31, 2000 compared to a deficit of $586,426 on December 31, 1999, an
increase of $7,757,590. This increase for the year ended December 31, 2000 was
the result of assets acquired in the Classic Care Pharmacy transaction.
As of December 31, 2000, our working capital position decreased $1,251,046
from a negative $505,426 at December 31, 1999 to a negative $1,756,472 at
December 31, 2000. This result was attributed to a $2,853,592 increase in
accounts payable and accrued expenses, offset by a $1,017,350 increase in
accounts receivable, a $385,219 increase in inventories, a $181,048 increase in
cash, and the remainder due to an increase in other current assets over the same
period in 1999.
Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate our continuation as
a going concern. However, we have experienced net losses of $483,585 and
$2,413,175 for the period ended June 30, 2001 and the year ended December 31,
2000, respectively. We also had a net working deficit of $361,304 and
$1,745,642 for the period ended June 30, 2001 and the year ended December 31,
2000, respectively. Additionally, we must raise additional capital to meet our
funding commitments for the acquisition of Classic Care, Inc. These factors
raise doubt about our ability to continue as a going concern. In view of the
matters described above, recoverability of a major portion of the recorded asset
amounts shown in the accompanying balance sheet is dependent upon our ability to
generate sufficient sales volume to cover its operating expenses and to raise
sufficient capital to meet its payment obligations. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts, or amounts and classification of liabilities that might
be necessary should we be unable to continue in existence.
Subsequent Events
August 2001
In August 2001, Kaire issued a convertible note for $300,000, with simple
interest accruing at the annual rate of 8%. Interest payable on the note shall
accrue at the annual rate of 8% and be payable quarterly commencing September
30, 2001. The holder shall have the right to convert the principal amount and
interest due under the notes into shares of our common stock. Kaire also issued
common stock purchase warrants with the right to purchase 1.5 million shares of
common stock of Kaire. We anticipate that the $300,000 convertible note will be
converted into shares in accordance with the terms of the note.
17
OUR BUSINESS
Headquartered in Los Angeles, California, Kaire's principle business is
providing specialized pharmacy care to seniors living in extended care
facilities and HIV patients.
History
Kaire Holdings Incorporated, formerly known as Interactive Medical
Technologies Ltd., was incorporated in Delaware in 1986.
On February 19, 1998, we did the following three things:
1. We changed the name of our to Kaire Holdings, Inc. from Interactive
Medical Technologies, Ltd.;
2. We changed our Nasdaq OTCBB symbol to "KAHI" from "NONI"; and
3. We reverse split our common stock at a ratio of seventy-five (75) to one
(1).
From 1986 through May of 1999, Kaire's business operations consisted of the
sale of EZ-TRAC non-radioactive diagnostic imaging micro spheres along with the
companion Investigator Partner Service (IPS) that provided quantitative
laboratory analysis to customers who use the EZ-Trac micro sphere products in
their research studies. Customers included private and government research
facilities, academic centers, and hospitals engaged in the study regional blood
flow under laboratory conditions. The majority of customers relied on research
grants to fund their blood flow studies, which ultimately limited the size and
opportunity of that market.
In May 1999, we changed our business based on a decision to refocus our
business on larger consumer driven markets that would provide more opportunity
for Kaire. That month, we opened an e-commerce consumer health oriented
business named VitaPlanet.com, which marketed over the counter herbal and
natural health products through the Internet. During the months from May 1999 to
November 1999, we developed and expanded our web site. In November of 1999,
VitaPlanet.com was renamed YesRx.com and re-launched as a full e-commerce online
pharmacy and drugstore providing specialized pharmacy care, over the counter
health and wellness and personal care products to targeted segments of the
senior health care market.
In May of 2000, we signed a letter of intent with Stason USA, a
pharmaceutical company that specializes in product development, pilot scale
production, technology transfer and management of technical information and
resources for the development of prescription drugs in solid form. The letter of
intent outlined a plan to merge our EZ-TRAC/IPS laboratory business with a
similar business of Stason's. The plan also called for the relocation of our
laboratory business to Stason's facilities in Irvine, California. . We
completed the move of our laboratory business in May 2000 and have subsequently
merged those operations with Stason's.
In January 2001, we finalized the agreement with Stason USA. In February
2001, we formed the new Stason Bio-Tech entity, which contains the merged
laboratory businesses. Initially, the new entity will be engaged in the
research and development of compounds and testing measures for the treatment of
pathogenic viral infections and other medical applications related to solid form
prescription drug
18
formation as well as providing contract research and development services to
manufacturers of pharmaceutical drugs. It is Stason's and our intent to make
Stason Bio Tech a publicly reporting entity during calendar year 2001.
In June of 2000, we acquired Los Angeles-based Classic Care pharmacy, which
provides specialized pharmacy care services to retired persons living in
extended care facilities throughout Los Angeles and Orange Counties in
California. Classic Care pharmacy currently serves 4000 beds, an increase of
900 beds since we acquired it.
Also, in June of 2000, we introduced a pilot HIV pharmacy program designed
to test market acceptance. Based on the success of that pilot program, we
developed and formally launched the program in November 2000 as the "Health
Advocate Program". The program provides specialized pharmacy care, health and
disease information and education, and individual patient counseling along with
customizable medication compliance program for HIV patients.
In July of 2000, we acquired the NETFAME.com domain." We intended to
develop an interactive online exchange to facilitate communication between a
planned subscriber base consisting of emerging actors, models, and musicians,
with established entertainment industry agents. Due to current market
conditions Kaire has terminated the NetFame.com operations.
YesRx
YesRx.com began operations in November 1999 as an Internet based pharmacy
that provided a full range of pharmacy services combined with over the counter
drug store products and extensive health related information and content
directed at the senior market segment.
In November of 2000, YesRx introduced the Health Advocate Program. The
program targets the special pharmacy needs of specific chronic care communities.
The program currently provides specialized pharmacy care to seniors living in
extended care facilities and HIV patients. The key point of the program is the
service each patient receives from our Health Advocate team. Health Advocate
team members perform a range of service well beyond that of an average pharmacy.
HIV Health Advocates typically come from the communities they serve and process
a comprehensive working knowledge of the disease and its treatments. Services
include, personal delivery of medications, counseling, facilitating
communication between patients and their physicians, medication compliance,
managing patient insurance claims and more. Many times an individual Health
Advocate becomes a valued member of a patient's family.
The Health Advocate program is based at Classic Care Pharmacy in Los
Angeles. From that location the program serves HIV patients in Los Angeles and
Orange counties in Southern California. Kaire has scaled back its YesRx.com e-
commerce operations.
Classic Care Pharmacy
In 1997, Classic Care Pharmacy began operations as a provider of
specialized pharmacy care for retired seniors. Since that time, Classic Care
has steadily increased the number of facilities and patients it serves.
Classic Care provides specialized services for seniors managing complex
medication regimes and chronic health conditions. Many times, the elderly are
required to take numerous medications daily.
19
In those cases, compliance becomes a crucial matter for the patient as well as
the facility caring for the patient. Classic Care fills prescriptions utilizing
a computerized system which labels and codes individual patient medications that
are then sealed in single dose packets. This system helps reduce the chance of a
patient experiencing an adverse drug reaction due to non-compliance while also
increasing the time facility care providers have to spend with their patients.
Services include daily delivery and management all patient insurance billing
claims. Classic Care serves southern California facilities in Los Angeles,
Hollywood, Long Beach, Ventura, North Hollywood, Van Nuys, Reseda, Oxnard and
other locations. Classic Care serves as the primary fulfillment center for all
of Kaire's specialized pharmacy care operations.
Stason Biotech
In May of 2000, we signed a letter of intent with Stason USA, Inc, which
outlined a plan to merge our EZ-TRAC/IPS laboratory business with a similar
business of Stason's. The plan also called for the relocation of our laboratory
operations to Stason's facilities in Irvine, California. We completed the move
of our laboratory business in May 2000 and have subsequently integrated those
operations with Stason's.
In February 2001, we formed the new Stason Biotech entity, which contains
the merged laboratory businesses. Initially, the new entity will be engaged in
the research and development of compounds and testing measures for the treatment
of pathogenic viral infections and other medical applications related to solid
form prescription drug formation as well as providing contract research and
development services to manufacturers of pharmaceutical drugs.
It is Stason's and our intent to make Stason Biotech a publicly reporting
entity. Both Kaire and Stason have reached an agreement regarding the final
terms of the Stason Biotech agreement and are now in the process of making
strategic development decisions for the new company.
In January of 2001, Kaire finalized the agreement with Stason USA, Inc.,
which contributed its EZ Trac lab business in exchange for 40% of the newly
formed entity. This divestiture was in furtherance of Kaire's focus on its
niche pharmaceutical business
In consideration of Kaire's investment, Kaire received 40% of the initial
stock allocation for Stason Biotech. Because the EZ TRAC operation was a net
liability, Kaire will show a net gain on the transfer of assets. Any subsequent
gain or loss on the Stason Biotech investment will be shown as an adjustment in
the investment.
In the second half of 2001, Stason Biotech will focus on two tasks:
. Stason Biotech will complete an independent audit of its operations.
. Stason Biotech will develop the products and services offered by us,
including pursuing pharmaceutical research contracts and development of
strategic relationships overseas.
Stason Pharmaceuticals USA, Inc. is a pharmaceutical company that
specializes in product development, pilot scale production, technology transfer
and management of technical information and resources for the development of
prescription drugs in solid form.
20
Important Events and Accomplishments
Some events have occurred over the past year, which Kaire believes will
have a positive effect on Kaire's business. These favorable events, starting
from the most recent, are the following:
. Kaire reported June 30, 2001, second quarter revenues of $3,687,328
with net income of $141,366
. January 2001: Kaire finalized the agreement with Stason USA, Inc. that
------------
divested its EZ Trac lab business in exchange for 40% of the newly
formed company called Stason Biotech.
. November 30, 2000: Kaire finalized the purchase of Classic Care
-----------------
Pharmacy amending the letter of intent signed in June 2000. The
Amendment sets the purchase price at $9,500,000 to be paid in a
combination of cash and stock. The Amended Agreement calls for an
initial cash payment of $1,000,000 plus an additional $2,000,000 to be
paid in cash payments of $250,000 each beginning in March 2001 through
October 2001. The required amounts are to be funded through outside
financing. Thus far, $1,699,000 of the $3,000,000 has been paid. Kaire
has issued 15,499,999 common shares as the initial stock portion of the
Amended Agreement. The value of the 15,499,999 shares is required to be
no less than the balance of the cash owed or at least $.42 per share in
order to meet the target price of $9,500,000. If the price of the stock
is not equal to or greater than $.42 per share during the period ended
October 31, 2001, we will be required to issue sufficient additional
shares of common stock or pay additional cash to insure that the total
consideration paid for the acquisition is $9,500,000. The additional
stock must be issued or cash must be paid by November 30, 2001. Kaire
intends to pay the balance of this liability through equity fundraising
and by using profits from Classic Care Pharmacy. Should either of these
sources of funds fail to produce adequate capital for the payment of
the Classic Care liability, it is possible that Kaire may have to sell
Classic Care Pharmacy in order to pay off this debt.
. November 13, 2000: Kaire Holdings, Inc. announces record third quarter
-----------------
sales and posted it's first ever-quarterly profit.
. November 11, 2000: YesRx launched the Health Advocate Program. Along
-----------------
with the Health Advocate Program, YesRx debuted a new and improved
internet site which incorporates over 20,000 additional over the
counter products as well as new integrated health community
destinations for HIV, Senior, Diabetic and Disabled individuals.
. June 26, 2000: Kaire announced that it had completed the first stage
-------------
of the strategic agreement with Stason USA. In doing so, Kaire
completed the training of Stason technicians and physically relocated
the EZ-Trac lab to Stason's Irvine, California facility.
. April 19, 2000: Kaire Holdings, Inc. executed the documents related
--------------
to the Classic Care Pharmacy acquisition. Classic Care will serve as a
distribution center for YesRx and will aid us in developing the
targeted Health Advocate program.
21
Strategic Vision
Kaire's strategy is to target what it believes is one of the more
profitable sectors of the prescription drug and general drugstore business:
medications and services for the chronic care patient. These consumers often
require multiple drugs on a monthly basis. Additionally, these consumers are
often in need of valuable information related to their particular medical
condition. Kaire's approach is to integrate key value-added informational
services with excellent product distribution. Kaire intends to expand the scope
of Kaire's product and service offerings and the geography to which these goods
and services are delivered.
Employees
Kaire currently has 33 full-time employees.
Properties
Our corporate facility is located in a Los Angeles, California and consists
of approximately 5,000 square feet of executive office space. We lease this
facility for a monthly base rent of $5,100. The lease expires in .year 2003 We
believe that our facilities are adequate for our needs for the foreseeable
future.
22
Management
Executive Officers and Directors
- -------------------------------------------------------------------------------------------------
Name Age Position
- -------------------------------------------------------------------------------------------------
Steven R. Westlund 55 Chairman of the Board and Chief Executive Officer
- -------------------------------------------------------------------------------------------------
Owen M. Naccarato 51 Chief Financial Officer, Secretary and Director
- -------------------------------------------------------------------------------------------------
Mark L. Baum 28 President
- -------------------------------------------------------------------------------------------------
Asher Gottesman 27 Director
- -------------------------------------------------------------------------------------------------
The Officers and Directors of Kaire will devote only such time as they deem
appropriate in the business affairs of Kaire. It is, however, expected that the
officers will devote the time deemed necessary to perform their duties for our
business.
The directors of Kaire are elected to hold office until the next annual
meeting of shareholders and until their respective successors have been elected
and qualified.
Biographies Of Our Executive Officers And Directors
- ---------------------------------------------------
Steven Westlund has been the Chief Executive Officer and a director of
Kaire since May 1995 and was elected Chairman of the Board in December 1995.
Mr. Westlund was Chairman of the Board and Chief Executive Officer of Vitafort
International Corporation from May 1993 through May 1995. Vitafort manufactured
and sold fat free foods. From January 1991 to May 1993, Mr. Westlund was Chief
Executive Officer of Lorenz/Germaine Incorporated and concurrently from January
1991 to June 1992 he acted as Chairman and Chief Executive Officer of Auto
Giant. Mr. Westlund specializes in corporate restructuring and the development
and marketing of specialized products and services..
Owen Naccarato joined Kaire in July 1997 as Chief Financial Officer and
Secretary on a one- year renewable contract and was elected to the board of
directors in January 1998. Mr. Naccarato has held various operating positions,
most recently as Chief Financial Officer for Bikers Dream, Inc. a Nasdaq traded
motorcycle assembler and parts distributor and divisional vice
president/controller for Baxter Healthcare, Inc., a NYSE traded health care
manufacturer and distributor. Mr. Naccarato is a licensed attorney and is a
member of the California State Bar Association. He is also a Certified Public
Accountant. Prior to Kaire, Mr. Naccarato was with Baxter Healthcare for ten
years.
Mark Baum joined Kaire in July of 1999 as the President. Mr. Baum has
several years of experience in creating and developing start-up enterprises -
from retail to manufacturing to internet-based businesses. Mr. Baum holds a BA
from the University of Texas at Arlington, and a Juris Doctorate from California
Western School of Law. Mr. Baum is a member of the America Bar Association and
is a licensed attorney in the State of California. Prior to Kaire, Mr. Baum was
a practicing attorney in San Diego, California for four years.
Asher Gottesman joined Kaire as a Director in August of 2000. Mr.
Gottesman served as a Partner of Amazing Savings Outlet Stores, a 40-unit
retail business with sales of more than 60 million dollars per year. Presently
and for over fived years, Mr. Gottesman is a partner in a real estate and
investment trust, which controls more than 50 million dollars in assets. Mr.
Gottesman joined the Kaire Board of Directors through his association with
Classic Care Pharmacy. In 1993, Mr. Gottesman earned a BA in Economics from
Yeshiva University.
23
Information Concerning our Board of Directors and it's Committees
Directors receive no remuneration at this time. All Kaire directors are
entitled to reimbursement of funds advanced to pay expenses in connection with
our business. We have not established committees of the board of directors.
24
EXECUTIVE COMPENSATION
- ------------------------------------------------------------------------------------------------------------------------
Payouts Annual Compensation Long Term Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------
Name and Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Principal Compensation Stock Awards Underlying Payouts Compensation
Position ($) ($) Options/SAR ($) ($)
(#)
- ------------------------------------------------------------------------------------------------------------------------
CEO 2000 100K 4,833,333
- ------------------------------------------------------------------------------------------------------------------------
President 2000 75K 3,333,333
- ------------------------------------------------------------------------------------------------------------------------
CFO 2000 87K 3,333,333
- ------------------------------------------------------------------------------------------------------------------------
Total: 262K
- ------------------------------------------------------------------------------------------------------------------------
Directors 187K
as a
Group
- ------------------------------------------------------------------------------------------------------------------------
Chief Executive Officer Compensation:
- ------------------------------------
On April 1, 2000, Mr. Westlund signed a three-year employment agreement.
The contract calls for Mr. Westlund to be paid a base salary of $8,333.33 per
month for the first year of the term. Mr. Westlund's base salary shall increase
15 % per year for the second year and third years, respectively, per the
agreement.
Although Mr. Westlund's Employment Agreement states that his salary is to
be $8,333.33 per month, his actual pay has been $ 4,000.00 per month. Mr.
Westlund is entitled to be paid the balance of his monthly compensation in
either cash or equity. Additionally, Mr. Westlund has been granted an option to
purchase up to 6 million shares of Kaire common stock over the next 5 years at
an option price of $ 0.05 per share. To date, Mr. Westlund has exercised
options to purchase 1,166,667 shares of our common stock.
Chief Financial Officer Compensation:
- ------------------------------------
On April 1, 2000, Mr. Naccarato signed a three-year employment agreement.
The agreement calls for Mr. Naccarato to be paid a base salary of $7,250.00, per
month for the first year of the term. Mr. Naccarato's base salary shall
increase 15 % per year for the second year and third years, respectively, per
the agreement.
Although Mr. Naccarato's Employment Agreement states that his salary is to
be $7250.00 per month, his actual pay has been $ 4,000.00 per month. Mr. is
entitled to be paid the balance of his monthly compensation in either cash or
equity. Additionally, Mr. Naccarato has been granted an option to purchase up
to 4.5 million shares of Kaire Common Stock over the next 5 years at an option
price of $ 0.05 per share. To date, Mr. Naccarato has exercised 1,166,667
shares of our common stock.
President's Compensation:
- ------------------------
On April 1, 2000, Mr. Baum signed a three-year employment agreement. The
agreement calls for Mr. Baum to be paid a base salary of $ 6,250.00, per month
for the first year of the term. Mr. Baum's base salary shall increase 15 % per
year for the second year and third years, respectively, per the agreement.
Although Mr. Baum's Employment Agreement states that his salary is to be
$6250.00 per month, his actual pay has been $ 4,000.00 per month. Mr. is
entitled to be paid the balance of his
25
monthly compensation in either cash or equity. Additionally, Mr. Baum has been
granted an option to purchase up to 4.5 million shares of Kaire common stock
over the next 5 years at an option price of $ 0.05 per share. To date, Mr. Baum
has exercised options to purchase 1,166,667 shares of our common stock.
Compensation of Directors:
Directors receive no remuneration for their services as directors at this
time.
26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 30, 2000, we acquired Classic Care Pharmacy for a purchase
price of $9,500,000 to be paid in a combination of cash and our stock. Asher
Gottesman, who is now on our board of directors, received 10,333,333 shares of
our common stock out of the 15,499,999 issued and is due a balance payment of
$1,301,000. This amount is to be paid out over time. In addition, if the
common stock received is not equal to or greater than $.42 per share during the
period ended October 31, 2001, we will be required to issue sufficient
additional shares of common stock or pay additional cash to insure that the
total consideration paid for the acquisition is $9,500,000. The additional
stock must be issued or cash must be paid by November 30, 2001.
Of the 10,333,333 shares of common stock issued to Mr. Gottesman, 3,000,000
shares are held in escrow as collateral against the $300,000 convertible
debenture issued on August 21, 2001 to The Keshet Fund, L.P.
27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of the date of this
prospectus regarding certain ownership of Kaire's outstanding common stock by
all officers and directors individually, all officers and directors as a group,
and all beneficial owners of more than five percent of the common stock.
- ----------------------------------------------------------------------------------------------------
Name and Address Shares Beneficially Owned (1) Percent of Class
- ----------------------------------------------------------------------------------------------------
Steven R. Westlund 4,833,333(2) 3.94%
7348 Bellaire Avenue
North Hollywood, CA 91605
- ----------------------------------------------------------------------------------------------------
Owen M. Naccarato 3,333,333(2) 2.75 %
7348 Bellaire Avenue
North Hollywood, CA 91605
- ----------------------------------------------------------------------------------------------------
Mark L. Baum 3,333,333(2) 2.75 %
7348 Bellaire Avenue
North Hollywood, CA 91605
- ----------------------------------------------------------------------------------------------------
Asher Gottesman 10,333,333(3) 8.80%
7348 Bellaire Avenue
North Hollywood, CA 91605
- ----------------------------------------------------------------------------------------------------
Officers and directors as a 21,833,332 16.89%
group (4 persons)
- ----------------------------------------------------------------------------------------------------
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of the registration
statement upon the exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person and which are exercisable within 60 days of
the date of this registration statement have been exercised. Unless
otherwise indicated, we believe that all persons named in the table have
voting and investment power with respect to all shares of common stock
beneficially owned by them.
(2) Represents options to purchase shares of our common stock at $0.05 per
share, which options are currently exercisable.
(3) Includes 3,000,000 shares of common stock held in escrow as collateral
against the $300,000 convertible note issued on August 17, 2001 to Laurus
Master Fund, Ltd.
28
DESCRIPTION OF SECURITIES
Common Stock
As of the date of this prospectus, the authorized capital stock of Kaire
consists of 400,000,000 shares of common stock, $.001 par value, of which
162,037,851 shares are issued and outstanding. There are approximately 664
shareholders that are not in street name. The holders of common stock are
entitled to dividends, pro rata, as and when declared by the Board of Directors,
to one vote per share at a meeting of stockholders and, upon winding up or
liquidation, to receive those of our assets that are distributable to the
holders of the common stock upon winding up or liquidation. No common stock has
been issued subject to call or assessment. There are no preemptive or conversion
rights and no provisions for redemption, purchase for cancellation, surrender or
sinking funds.
Warrant and Options
833,334 warrants at an exercise price of $.1485 have been issued to Libra
Finance S.A., P.O. Box 4603, Zurich, Switzerland. Additionally, pursuant to the
same provisions, 1,666,666 warrants at an exercise price of $.1485 have been
issued to Talbiya B. Investments Ltd., Ragnall House, 18 Peel Road, Douglas,
Isle of Man, 1M14L2, United Kingdom.
Kaire's CEO and Chairman, Mr. Westlund, currently has an option to purchase
4,833,333 shares of our common stock at an option price of $ .05 per share.
Kaire's CFO and Secretary, Mr. Naccarato, currently has an option to
purchase 3,333,333 shares of our common stock at an option price of $ .05 per
share.
Kaire's President, Mr. Baum, currently has an option to purchase 3,333,333
shares of our common stock at an option price of $ .05 per share.
We issued 1,500,000 warrants to Laurus Master Fund Ltd. The warrants are
at an exercise price of the lesser of $.0396 or 110% of the lowest closing price
of our common stock for the 10 days preceding the date of the exercise of the
warrants.
We issued 1,500,000 warrants to The Keshet Fund L.P. The warrants are at
an exercise price of the lesser of $.011 or 110% of the lowest closing price of
our common stock for the 10 days preceding the date of the exercise of the
warrants.
29
SHARES ELIGIBLE FOR FUTURE SALE
Shares Outstanding and Freely Tradable After Offering. Upon completion of
this offering, we will have approximately 204,412,851 shares of common stock
outstanding, assuming the conversion of all convertible notes, at current market
prices, and the exercise of all warrants held by the selling shareholder. The
shares to be sold by the selling shareholder in this offering will be freely
tradable without restriction or limitation under the Securities Act, except for
any such shares held our by "affiliates", as such term is defined under Rule 144
of the Securities Act, which shares will be subject to the resale limitations
under Rule 144.
Rule 144. In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least one year, including an affiliate of us, would be entitled to sell, within
any three-month period, that number of shares that does not exceed the greater
of 1% of the then-outstanding shares of common stock (approximately 2,044,129
shares after this offering) or the average weekly trading volume in the common
stock during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the Commission, provided certain manner of sale and
notice requirements and requirements as to the availability of current public
information about us is satisfied. In addition, affiliates of ours must comply
with the restrictions and requirements of Rule 144, other than the one-year
holding period requirement, in order to sell shares of common stock. As defined
in Rule 144, an "affiliate" of an issuer is a person who, directly or
indirectly, through the use of one or more intermediaries controls, or is
controlled by, or is under common control with, such issuer. Under Rule 144(k),
a holder of "restricted securities" who is not deemed an affiliate of the issuer
and who has beneficially owned shares for at least two years would be entitled
to sell shares under Rule 144(k) without regard to the limitations described
above.
Effect of Substantial Sales on Market Price of Common Stock. We are unable
to estimate the number of shares that may be sold in the future by our existing
shareholders or the effect, if any, that such sales will have on the market
price of the common stock prevailing from time to time. Sales of substantial
amounts of common stock, or the prospect of such sales, could adversely affect
the market price of the common stock.
30
SELLING SHAREHOLDER
The table below sets forth information concerning the resale of the shares
of common stock by the selling shareholder. We will not receive any proceeds
from the resale of the common stock by the selling shareholder. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the selling shareholder, none of the selling shareholder will
continue to own any shares of our common stock.
The following table also sets forth the name of each person who is offering
the resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
- ------------------------------------------------------------------------------------------------------------------------------------
Total Shares of Total Shares of Beneficial Beneficial Percentage of
Common Stock Percentage of Common Stock Ownership Percentage of Owner-ship Common Stock
Issuable Upon Common Stock, Included in Before the Common Stock After the Owned After
Conversion of Notes Assuming Full Prospectus Offering Owned Before Offering Offering
Name and/or Warrants(2) Conversion(2) (1) (2) Offering (3) (3)
- ------------------------------------------------------------------------------------------------------------------------------------
Keshet Fund L.P. 42,375,000 21% Up to $399,000 10,735,924 4.99% -- --
worth of common
stock
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling shareholder has sole or shared voting power or investment power and
also any shares which the selling shareholder has the right to acquire within 60
days. The actual number of shares of common stock issuable upon the conversion
of the convertible note is subject to adjustment depending on, among other
factors, the future market price of the common stock, and could be materially
less or more than the number estimated in the table.
(1) Because the number of shares of common stock issuable upon conversion of
the convertible note is dependent in part upon the market price of the
common stock prior to a conversion, the actual number of shares of common
stock that will be issued upon conversion will fluctuate daily and cannot
be determined at this time. However the selling shareholder has
contractually agreed to restrict its ability to convert or exercise its
warrants and receive shares of our common stock such that the number of
shares of common stock held by it and its affiliates after such conversion
or exercise does not exceed 4.99% of the then issued and outstanding shares
of common stock. As a result of the contractual agreement not to exceed
4.99% beneficial ownership, the selling shareholder does not believe it is
a control person as defined in the Securities Exchange Act of 1934 or is
required to file a Schedule 13D.
(2) Assumes that the 80% average of the three lowest closing prices of our
common stock for the thirty days immediately prior to this conversion date
is $0.01. Includes 1,500,000 shares underlying warrants that are currently
exercisable at an exercise price of $0.011 per share. In
31
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, John
Clarke may be deemed a control person of the shares owned by such entity.
(3) Assumes that all securities registered will be sold.
32
PLAN OF DISTRIBUTION
The selling shareholder may, from time to time, sell any or all of its
shares of common stock on any stock exchange, market, or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. There is no assurance that the selling shareholder
will sell any or all of the common stock in this offering. The selling
shareholder may use any one or more of the following methods when selling
shares:
. Ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers.
. Block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction.
. Purchases by a broker-dealer as principal and resale by the broker-
dealer for its own account.
. An exchange distribution following the rules of the applicable
exchange
. Privately negotiated transactions
. Short sales or sales of shares not previously owned by the seller
. Broker-dealers may agree with the selling shareholder to sell a
specified number of such shares at a stipulated price per share
. A combination of any such methods of sale any other lawful method
The selling shareholder may also engage in:
. Short selling against the box, which is making a short sale when the
seller already owns the shares.
. Other transactions in our securities or in derivatives of our
securities and the subsequent sale or delivery of shares by the
stockholder.
. Pledging shares to their brokers under the margin provisions of
customer agreements. If a selling shareholder defaults on a margin
loan, the broker may, from time to time, offer to sell the pledged
shares.
Broker-dealers engaged by the selling shareholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from selling shareholder in amounts to be negotiated. If any
broker-dealer acts as agent for the purchaser of shares, the broker-dealer may
receive commission from the purchaser in amounts to be negotiated. The selling
shareholder does not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
The selling shareholder and any broker-dealers or agents that are involved
in selling the shares may be considered to be an "underwriter" within the
meaning of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any
33
profit on the resale of the shares purchased by them may be considered to be
underwriting commissions or discounts under the Securities Act.
Because the selling shareholder is deemed an "underwriter" within the
meaning of Section 2(11) of the Securities Act, and will be subject to the
prospectus delivery requirements:
We are required to pay all fees and expenses incident to the registration
of the shares in this offering. However, we will not pay any commissions or any
other fees in connection with the resale of the common stock in this offering.
We have agreed to indemnify the selling shareholder and their officers,
directors, employees and agents, and each person who controls any selling
shareholder, in certain circumstances against certain liabilities, including
liabilities arising under the Securities Act. The selling shareholder has agreed
to indemnify us and our directors and officers in certain circumstances against
certain liabilities, including liabilities arising under the Securities Act.
If the selling shareholder notifies us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling shareholder and the broker-dealer.
34
LEGAL PROCEEDINGS
In February 1992, Medical Funding of America 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 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. 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 our opinion that its
obligations under this agreement have been assigned and that Siemens will not
pursue this matter any further.
Our magnetic resonance imaging system currently is installed in a mobile
van at an operating site in Jefferson Valley, New York and has been in use since
September 1992. It is leased to Tri-County Mobile MRI, L.P., whose general
partner is Diagnostics Resource Funding.
This lease provides for monthly payments of $37,926 to Venus Management,
Inc. through August 1999 and $68,589 in September 1999 (with such payments being
guaranteed by Medical Funding of America, Inc.), and VMI is required to make
monthly installment payments (which include interest at 10.5% per annum on the
unpaid principal balance) for the unit to a third party finance company of
$32,360 through August 1999 and $68,589 in September 1999. This lease provides
for a purchase option at the expiration of the initial term of such lease equal
to the then fair market value of the unit.
Tri-County was delinquent in making certain of its lease payments to VMI
under the terms of the lease agreement concerning the Unit, and MFA failed to
make these payments to VMI under its guarantee of Tri-County's payments to VMI.
Accordingly, VMI had not made certain payments due to the third-party finance
company for the Unit.
As a result, the third-party finance company issued a notice of default to
us. Tri-County is currently in discussions with the third-party finance company
to restructure the obligation, to assume the debt, and to take title to the
unit. It is expected that the third-party finance company will accept the
restructure, and we will release our title to the equipment in exchange for the
third-party finance company releasing us from our debt obligation. However, if
the parties are unable to resolve this matter, it is likely that the third-party
finance company will institute an action against us, VMI, and Tri-County for the
balance due, plus other costs and relief.
35
Patent Claim
An individual filed a complaint against us alleging breach of contract and
fraud and related business torts related to certain patents that the plaintiff
transferred to us. We believe that the plaintiff's claims are without merit and
intend to vigorously defend ourselves. The amount of claimed damages is not yet
determined.
Except as otherwise specifically indicated above, we believe that we do not
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, 2000.
However, there can be no assurance that we will prevail in any of the above
proceedings. In addition, we may be required to continue to defend ourselves
resulting in substantial additional expense. In the event we are unable to pay
the defense costs associated with the foregoing, an unfavorable settlement or
judgment could be awarded against us, which could have a material adverse effect
upon Kaire Holdings Incorporated.
EXPERTS
Our financial statements in the prospectus of this Form SB-2 registration
statement have been audited by Pohl, McNabola, Berg & Company LLP, as disclosed
in their report appearing elsewhere in this prospectus.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed
upon for us by Sichenzia, Ross, Friedman & Ference LLP, New York, New York.
36
OTHER AVAILABLE INFORMATION
We are subject to the reporting requirements of the Securities and Exchange
Commission (the "commission"). We file periodic reports, proxy statements and
other information with the commission under the Securities Exchange Act of 1934.
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933 Act with the Commission in connection with the securities offered by
this prospectus. This prospectus does not contain all of the information that is
the registration statement, you may inspect without charge, and copy our
filings, at the public reference room maintained by the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549. Copies of this material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549, at prescribe rates. Information about the
public reference room is available from the commission by calling 1-800-SEC-
0330.
The commission maintains a web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the commission. The address of the site is www.sec.gov.
Visitors to the site may access such information by searching the EDGAR
archives on this web site.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with any information that is
different.
The selling security holders are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where such offers and sales
are permitted.
The information contained in this prospectus is accurate only as of the
date of this prospectus.
37
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2000 and 1999
June 30, 2001 and 2001
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets F-2 - F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Deficit F-5
Consolidated Statements of Cash Flows F-6 - F-8
Notes to Consolidated Financial Statements F-9 - F-32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Kaire Holdings Incorporated
We have audited the accompanying consolidated balance sheets of Kaire Holdings
Incorporated and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Kaire Holdings
Incorporated and subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency, which raise doubts about its ability to
continue as a going concern. Management's plans regarding those matters also
are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Pohl, McNabola, Berg & Company LLP
March 27, 2001
-F-1-
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2000 and 1999
ASSETS
2000 1999
------------------ ------------------
Current assets
Cash and cash equivalents $ 311,716 $ 130,668
Accounts receivable, net of allowance of doubtful
accounts of $397,362 and $1,000 respectively 1,046,682 29,332
Inventory 385,219 -
Deposits 4,750 -
Other current asset 14,179 -
------------------ ------------------
Total current assets 1,762,546 160,000
------------------ ------------------
Noncurrent assets
Debt issuance costs 76,541 -
Property and Equipment, net of accumulated depreciation 278,147 -
Note Receivable-related party 280,500 -
Investments 30,028 -
Other non-current assets 5,000
Goodwill, net of accumulated amortization 9,202,267 -
------------------ ------------------
Total noncurrent assets 9,872,483 -
------------------ ------------------
Total assets $ 11,635,029 $ 160,000
================== ==================
(continued)
The accompanying notes are an integral part of these financial statements.
-F-2-
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
As of December 31, 2000 and 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Notes payable $ - $ 25,000
Accounts payable and accrued expense 1,960,029 640,426
Income tax payable 4,000 -
Due to Stason Biotech 175,000 -
Sales tax payable 5,727 -
Note payable-Acquisition 1,301,000 -
Capital leases-short term 73,262 -
------------ ------------
Total current liabilities 3,519,018 665,426
Long term liabilities
Convertible notes payable and debentures 821,000 81,000
Capital leases-long term 123,847 -
------------ ------------
Total long term liabilities 944,847 81,000
------------ ------------
Total liabilities 4,463,865 746,426
------------ ------------
Stockholders' deficit
Common stock, $0.001 par value
400,000,000 shares authorized; 117,765,033
And 77,197,000 shares issued and outstanding, respectively 117,765 77,197
Common Stock Subscriptions Receivable (20,000) -
Additional paid in capital 40,671,855 30,521,658
Accumulated deficit (33,598,456) (31,185,281)
------------ ------------
Total stockholders' deficit 7,171,164 (586,426)
------------ ------------
Total liabilities and stockholders' deficit $ 11,635,029 $ 160,000
============ ============
The accompanying notes are an integral part of these financial statements.
-F-3-
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
Consolidated Statements of Operations
For the Periods Ending December 31, 2000 and 1999
2000 1999
------------- ------------
Revenues $ 5,707,700 $ 259,545
Cost of goods sold 4,056,631 89,245
------------- ------------
Gross Profit 1,651,069 170,300
------------- ------------
Operating expenses
Research and development - 153
Depreciation and Amortization 329,625 8,776
Selling, general, and administrative expenses 3,949,357 1,005,367
------------- ------------
Total operating expenses 4,278,982 1,014,296
------------- ------------
Loss from operations (2,627,913) (843,996)
------------- ------------
Other income (expenses)
Interest expense (32,506) (82,250)
Other income (expense) - 354,479
Non-cash miscellaneous income 185,403 27,326
Write-down of accounts payable 60,812 75,504
Equity in earnings of Stason Biotech 5,028 -
------------- ------------
Total other income (expenses) 218,738 375,059
------------- ------------
Loss before provision for income taxes (2,409,175) (468,937)
Provision for income taxes 4,000 3,600
------------- ------------
Net loss $ (2,413,175) $ (472,537)
============= ============
Basic loss per share $ (0.02) $ (0.01)
============= ============
Diluted loss per share $ (0.02) $ (0.01)
============= ============
Weighted-average shares outstanding - basic 104,953,458 36,251,628
============= ============
Weighted-average shares outstanding - diluted 104,953,458 36,251,628
============= ============
The accompanying notes are an integral part of these financial statements.
-F-4-
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Periods Ending December 31, 2000 and 1999
Common Stock Common stock Additional
--------------------------- Subscription Paid-In Accumulated
Shares Amount Receivable Capital Deficit Total
---------------------------------------------------------------------------------------------
Balance, December 31, 1998 15,387,384 $ 15,387 $ - $ 28,086,764 $ (30,712,744) $ (2,610,593)
Issued for conversion
of notes payable 32,866,250 32,866 1,281,784 1,314,650
Issued for convertible note
interest 208,482 208 4,896 5,104
Issued for professional services 335,000 335 19,165 19,500
Issued for services 817,610 818 64,182 65,000
Issued for conversion of debt 7,678,708 7,679 162,769 170,448
Issued for options exercised 17,310,000 17,310 788,190 805,500
Issued for other compensation 1,275,000 1,275 62,475 63,750
Beneficial Conversion 1,318,792 1,319 51,433 52,752
Net loss (472,537) (472,537)
-------------------------------------------------------------------------------------------
Balance, December 31, 1999 77,197,226 $ 77,197 $ - $ 30,521,658 $ (31,185,281) $ (586,426)
-------------------------------------------------------------------------------------------
Issued for conversion
of notes payable 200,000 200 9,800 10,000
Issued for convertible note
interest 389,110 389 17,611 18,000
Issued for professional services 2,123,168 2,123 91,933 94,056
Issued for services 4,140,000 4,140 305,860 310,000
Issued for investment-NetFame 50,000 50 4,950 5,000
Issued for conversion of debt 596,550 597 26,248 26,845
Issued for options exercised 16,456,980 16,457 1,633,142 1,649,599
Issued for Lost certificates 1,112,000 1,112 (1,112) -
Shares issued for Acquisition 15,499,999 15,500 6,484,500 6,500,000
Deferred compensation expense - - (463,135) (463,135)
Issued for employee compensation - - 2,040,400 2,040,400
Stock Subscriptions receivable - - (20,000) (20,000)
Net loss (2,413,175) (2,413,175)
-------------------------------------------------------------------------------------------
Balance, December 31, 2000 117,765,033 $ 117,765 $ (20,000) $ 40,671,855 $ (33,598,456) $ 7,171,164
===========================================================================================
The accompanying notes are an integral part of these financial statements.
-F-5-
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Year Ended December 31, 2000 and 1999
2000 1999
------------ ------------
Increase (decrease) in cash and cash equivalents
Net (loss) $(2,413,175) $ (472,537)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 53,160 16,035
Amortization of goodwill 276,465 -
Allowance for bad debts 324,648
Common stock issued for services 310,000 65,000
Common stock issued for conversion of debt - 170,448
Common stock issued for conversion of note payable - 1,314,650
Common stock issued for professional services 94,056 19,500
Common stock issued in payment of interest 13,099 5,104
Common stock issued for other compensation - 63,750
Charge related to beneficial conversion feature of convertible debentures - 52,752
Stock options issued for services at below the fair market
value of the stock on the date of the grant 1,577,265 -
Non-cash other expenses (Income) (5,028) (34,087)
------------ ------------
Total adjustments to net income $ 230,490 $ 1,200,615
------------ ------------
Cash flow from operating activities:
Changes in assets and liabilities
Trade accounts receivable $(1,413,712) $ 32,689
Inventories (385,219) 98,446
Deposits - 9,500
Prepaid expenses and other current assets (14,179) -
Debt Issuance cost (76,541) -
Income and Sales tax payable 9,727 -
Accrued interest on convertible notes 14,602 -
Accounts payable and accrued expenses 1,319,604 (863,313)
------------ ------------
Cash flow generated by (used in) operating activities $ (315,228) $ 477,937
------------ ------------
Cash flow from investing activities:
Purchase of property, equipment and leaseholds $ (48,823) $ -
Note Receivable - related party (280,500) -
Other Investments (25,000)
Investment in Classic Care (1,112,500) -
Due to Stason Biotech 175,000 -
------------ ------------
Net cash generated by (used in) investing activities $(1,291,823) $ -
------------ ------------
The accompanying notes are an integral part of these financial statements.
-F-6-
2000 1999
----------- -----------
Cash flow from financing activities:
Change in Notes Payable $ (25,000) $(1,159,100)
Payment on Note payable - Classic Care (586,500) -
Common stock issued for options exercised 1,649,599 805,500
Proceeds from convertible debenture 750,000
----------- -----------
Net cash generated by (used in) financing activities $ 1,788,099 $ (353,600)
----------- -----------
Net (decrease) increase in cash
and cash equivalents $ 181,048 $ 124,337
----------- -----------
Cash and cash equivalents at beginning of year 130,668 6,331
----------- -----------
Cash and cash equivalents at end of year $ 311,716 $ 130,668
=========== ===========
Supplementary disclosures of cash flow information
Cash paid during the year for
Interest $ - $ 13,912
Income taxes $ 7,264 $ 1,600
Supplemental schedule of non-cash investing and financing activities:
During the year ended December 31, 2000, the Company entered into the following
non-cash transactions:
Issued 589,110 shares of common stock for conversion of $10,000 of notes
payable, and $18,000 of accrued interest.
Issued 4,140,000 shares of common stock for services valued at $310,000
Issued 2,123,168 shares of common stock for professional fees valued at
$94,056
Issued 596,550 shares of common stock for conversion of debt valued at
$26,845.
Issued 15,499,999 shares of common stock for acquisition of Classic Care
Pharmacy valued at $6,500,000
Issued 50,000 shares of common stock for investment in NetFame.com valued at
$5,000
The accompanying notes are an integral part of these financial statements.
-F-7-
Supplemental schedule of non-cash investing and financing activities:
(continued)
In May 2000, the Company acquired 100% of stock of Classic Care Pharmacy
Assets acquired:
Non-cash working capital assets $ 471,960
Property & Equipment, net of accumulated depreciation of $107,348 282,485
Goodwill 9,478,732
-----------
10,233,177
Liabilities assumed:
Accounts payable 486,427
Long term liabilities 246,750
-----------
733,177
Cost of net assets acquired $ 9,500,000
===========
Payment for net assets acquired:
Cash paid at closing $ 1,112,500
Notes issued to stockholders of acquired company 1,887,500
15,499,999 shares issued for the acquisition 6,500,000
-----------
$ 9,500,000
===========
The accompanying notes are an integral part of these financial statements.
-F-8-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
- ---------------------------------
Kaire Holdings Inc. ("Kaire"), a Delaware corporation, was incorporated on June
2, 1986. Effective February 3, 1998, Kaire changed its name to Kaire Holdings
Incorporated from Interactive Medical Technologies, Ltd. in connection with its
investment in Kaire International, Inc. ("KII").
In 1999, the Company formed YesRx.com, Inc., an Internet drugstore focused on
pharmaceuticals, health, wellness and beauty products. The Internet web site
targets Internet shoppers and in particular, the senior citizen. YesRx.com
focuses on selling drugs for chronic care as opposed to emergency needs and
works mainly with the patient who has regular medication needs and multiple
refills.
During 2000, the Company completed a reorganization of the Company, which
included the transfer of the assets of EZ TRAC, Inc. to a new corporation,
Stason Biotech, Inc., in exchange for 40% of the outstanding common stock of the
new corporation and the acquisition of Classic Care Pharmacy, which provides
prescription medication services to seniors living in extended care facilities
in Southern California. These transactions reflected management's strategic plan
to transfer the Company from providing medical testing and laboratory analysis
to becoming a provider of prescription medication and supplies to senior
citizens and individuals needing chronic care.
In November of 2000, the Company advanced its business strategy with the
introduction of the YesRx Health Advocate Program. The Health Advocate Program
provides medication compliance programs to HIV/AIDS, diabetic and senior health
communities.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Kaire and its
wholly owned subsidiaries (collectively the "Company"). The Company's
subsidiaries include See/Shell Biotechnology, Inc., E-Z TRAC, Inc., Venus
Management, Inc., EFFECTIVE Health, Inc, and Classic Care Pharmacy, Inc. Only
Classic Care Pharmacy, Inc, has current operations; the remaining subsidiaries
are dormant. Intercompany accounts and transactions have been eliminated upon
consolidation.
-F-9-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
For purpose of the statements of cash flows, cash equivalents include amounts
invested in a money market account with a financial institution. The Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents are carried at cost,
which approximates market.
Concentration of cash
- ---------------------
The Company at times maintains cash balances in excess of the federally insured
limit of $100,000 per institution. Uninsured balances as of December 31, 2000
were $11,907.
Revenue Recognition
- -------------------
The Company recognizes revenue at the time the product is shipped to the
customer or services are rendered. Outbound shipping and handling charges are
included in net sales. A significant portion of the Company's sales is within
the United States. International sales are minimal.
Net Loss Per Share
- ------------------
Income (loss) per common share is computed on the weighted average number of
common shares outstanding during each year. Basic EPS is computed as net income
(loss) applicable to common stockholders divided by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants and other convertible securities when the effect would be dilutive.
-F-10-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
- ---------
Inventory consists primarily of pharmaceuticals and health care products and is
stated at the lower of cost or market (First-in, First-out, basis).
Property and Equipment
- ----------------------
Furniture and equipment are recorded at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over estimated useful lives of three to seven years. Amortization of
leasehold improvements and assets financed under capital leases is computed
using the straight-line method over the shorter of the useful life of the asset
or the life of the respective lease.
Expenditures for additions and major improvements are capitalized. Maintenance
and minor replacements are charged to expense as incurred. Gains and losses on
disposals are included in the results of operations.
Goodwill
- --------
The Company capitalized as goodwill the excess acquisition costs over the fair
value of net assets acquired, in connection with business acquisitions, which
costs were being amortized on a straight-line method over 20 years. The carrying
amount of goodwill will be reviewed periodically based on the undiscounted cash
flows of the entities acquired over the remaining amortization period.
Research and Development
- ------------------------
Research and development expenses consist principally of payroll and related
expenses for development of the contrast microspheres. All research and
development costs are expensed as incurred.
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
-F-11-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes (continued)
- ------------------------
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. SFAS NO. 107, "Disclosure About Fair
Value of Financial Instruments," requires certain disclosures regarding the fair
value of financial instruments. 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-Based Compensation
- ------------------------
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 determined that it will not change to the fair value method and will
continue 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.
-F-12-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive Income (Loss):
- ----------------------------
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which is effective for financial statements for periods beginning after
December 15, 1997. This pronouncement establishes standards for reporting and
display of comprehensive income (loss) and its components in a full set of
general-purpose financial statements. Comprehensive income consists of net
income and unrealized gains (losses) on available-for-sale securities; foreign
currency translation adjustments; changes in market values of future contracts
that qualify as a hedge; and negative equity adjustments recognized in
accordance with SFAS No. 87. The Company, however, does not have any components
of comprehensive income (loss) as defined by SFAS 130 and therefore, for the
years ended December 31, 2000 and 1999, comprehensive loss is equivalent to the
Company's net loss.
Long -lived assets
- ------------------
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
the Company periodically evaluates the carrying value of long-lived assets to be
held and used, including intangible assets, when events and circumstances
warrant such a review. The carrying value of a long-lived asset is considered
impaired when the anticipated discounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in a
similar manner, except that fair market values are reduced for the cost to
dispose.
Advertising Costs
- -----------------
The Company expenses advertising costs as they are incurred. Advertising costs
for the year ended December 31, 2000 were $19,600.
Reclassifications
- -----------------
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentations.
-F-13-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment and Geographic Information
- ----------------------------------
The FASB issued SFAS No. 131 on "Disclosures about Segments of an Enterprise and
Related Information" effective in 1998. SFAS 131 requires enterprises to report
information about operating segments in annual financial statements and selected
information about reportable segments in interim financial reports issued to
shareholders, on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. It also
established standards for related disclosures about products and services,
geographic areas and major customers. The Company evaluated SFAS No. 131 and
determined that the Company operates in only one segment.
Other Accounting Pronouncements
- -------------------------------
In June 1998, the Financial Accounting Standard Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 requires that an enterprise recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement is effective for fiscal years beginning after June
15, 2000, and has been adopted by the Company for the year ending December 31,
2000. The Company does not believe that the adoption of the provisions of SFAS
No. 133 will have a material impact on its financial position or results of
operations, as the Company does not have any derivative instruments.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
effective Date of FASB Statement No. 133,". The statement is effective for
periods beginning after June 1999 and amends paragraph 48 of SFAS No. 133 and
supersedes paragraph 50 of SFAS No. 133. The Company does not believe that the
adoption of the provisions of SFAS No. 137 will have a material impact on its
financial position or results of operations.
In June 2000, the Financial Accounting Standards Board issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities-an
amendment of FASB Statement No. 133," The Statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company does not
believe that the adoption of the provisions of SFAS No. 138 will have a material
impact on its financial position or results of operations.
-F-14-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other Accounting Pronouncements (continued)
- -------------------------------------------
In March 2000, the FASB released Interpretation No.44, " Accounting for Certain
Transactions Involving Stock Compensation." This Interpretation addresses
certain practice issues related to APB Opinion No.25. The provisions of this
Interpretation are effective July 1, 2000, and, except for specific transactions
noted in paragraphs 94-96 of this Interpretation, shall be applied prospectively
to new awards, exchanges of awards in business combinations, modifications to an
outstanding award, and exchanges in grantee status that occur on or after that
date.
Certain events and practices covered in Interpretation No. 44 have different
application dates, and events that occur after an application date but prior to
July 1, 2000, shall be recognized only on a prospective basis. Accordingly, no
adjustment shall be made upon initial application of the Interpretation to
financial statements for periods prior to July 1, 2000. Thus, any compensation
cost measured upon initial application of this Interpretation that is attributed
to periods prior to July 1, 2000 shall not be recognized. The Company has
adopted the provisions of this Interpretation starting July 1, 2000.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has experienced net losses of
$2,413,175 and $472,537 for the years ended December 31, 2000 and 1999,
respectively. The Company also had a net working deficit of $1,756,472 and
$505,426 for the years ended December 31, 2000 and 1999 respectively.
Additionally, the Company must raise additional capital to meet its funding
commitments for the acquisition of Classic Care, Inc. These factors raise doubt
about the Company's ability to continue as a going concern. In view of the
matters described above, recoverability of a major portion of the recorded asset
amounts shown in the accompanying balance sheet is dependent upon the Company's
ability to generate sufficient sales volume to cover its operating expenses and
to raise sufficient capital to meet its payment obligations. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
Management has previously relied on equity financing sources and debt offerings
to fund operations. The Company's reliance on equity and debt financing will
continue, and the Company will continue to seek to enter into strategic
acquisitions.
NOTE 3 - INVESTMENTS
Investments as of December 31, 2000 consist of the following:
Stason Biotech, Inc. $ 5,028
Ebility, Inc. 25,000
------------
------------
$ 30,028
============
The investment in Stason Biotech, made during 2000, represents the Company's 40%
share of earnings in this company for the year ended December 31, 2000 as
recorded under the equity method of accounting. The investment in Ebility, made
during 2000, is recorded under the cost method of accounting.
The Company's investment in KII, Inc., a multi-level marketing company, was
written off during 1999.
-F-15-
NOTE 4 - NOTES RECEIVABLE--RELATED PARTY
As of December 31, 2000, the Company holds a $280,000 note receivable from one
of its shareholders. The note is due upon demand and bears no interest.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 and 1999 consisted of the following:
2000 1999
-------- --------
Furniture and equipment $675,945 $460,076
Leasehold improvements - 431,397
-------- --------
675,945 891,473
Less accumulated depreciation and amortization 397,798 891,473
-------- --------
Total $278,14$ -
======== ========
Depreciation and amortization expense for the years ended December 31, 2000 and
1999 was $53,160 and $16,035, respectively.
-F-16-
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 2000 and 1999 consisted of
the following:
2000 1999
---------------- -----------------
Accounts payable $ 1,480,216 $ 126,200
Accrued professional and related fees 43,000 108,091
Accrued compensation and related payroll taxes 170,617 2,928
Accrued interest payable 236,233 221,631
Other accrued expenses 29,963 181,576
---------------- -----------------
Total $ 1,960,029 $ 640,426
================ =================
NOTE 7 - NOTE PAYABLE -ACQUISITION
As of December 31, 2000, the Company has a note payable outstanding of
$1,301,000 as a result of its acquisition of Classic Care Pharmacy, Inc. This
interest free note is payable in installments through October 1, 2001.
NOTE 8 - CONVERTIBLE NOTES PAYABLE AND DEBENTURES
During January through May 1997, the Company issued convertible notes
aggregating to $479,655, which are due in, the same months in 2000. The notes
have a stated interest rate of 10% per annum, and interest is payable
semi-annually. The notes are convertible at $9.38 per share, which approximated
the average trading price of the Company's common stock. $10,000 of these notes
were converted into common stock in 2000 and $71,000 of these notes were still
outstanding as of December 31, 2000.
During October 2000, the company issued convertible notes aggregating to
$750,000, which are due in October 2002. The notes have a stated interest rate
of 8% per annum, and interest is payable quarterly and the principal balance is
due at maturity. The total notes outstanding at December 31, 2000, and 1999,
amounted to $821,000 and $81,000 respectively.
The convertible debentures amounting to $750,000, which were issued during 2000,
have a conversion price that is the lesser of (1) 80% of the average of the
three lowest closing prices out of the thirty closing prices prior to the
closing date and (2) 80% of the lowest three closing prices during the sixty
trading days, as reported on the NASD OTC
-F-17-
NOTE 8 - CONVERTIBLE NOTES PAYABLE AND DEBENTURES (continued)
Bulletin Board, immediately preceding the purchase date. Thus, the debentures
will be converted at prices below the current market price on the conversion
date. If conversions of the debentures occur, shareholders may be subject to an
immediate dilution in their per share net tangible book value. The current
convertible debentures may be converted into common stock at any time prior to
their maturity date of October 25, 2002.
NOTE 9 - INCOME TAXES
Significant components of the provision for taxes based on income for the years
ended December 31 are as follows:
2000 1999
------------ ------------
Current
Federal $ - $ -
State 4,000 3,600
------------ ------------
4,000 3,600
------------ ------------
Deferred - -
Federal - -
State
------------ ------------
Provision for income taxes $ 4,000 $ 3,600
============ ============
A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to income
before provision for (benefit from) income taxes for the years ended December 31
is as follows:
2000 1999
--------- ----------
Income tax provisions (benefit) computed
at federal statutory rate 34.0% 34.0%
State taxes, net of federal benefit (0.1) (0.1)
Increase in the valuation allowance (33.9) (33.9)
--------- ----------
Total (0.0)% (0.0)%
========= ==========
-F-18-
NOTE 9 - INCOME TAXES (continued)
Significant components of the Company's deferred tax assets and liabilities for
income taxes consist of the following:
2000 1999
------------ ------------
Deferred tax asset
Net operating loss carryforwards $ 6,911,627 $ 4,091,145
Impairment of assets 2,032,518 2,032,518
Options/warrants 675,700 2,101,337
Other 223,641 -
------------ ------------
9,843,486 8,225,555
Deferred tax liability
State income taxes (548,008) -
------------ ------------
Net deferred tax asset 9,295,478 8,225,555
------------ ------------
Valuation allowance (9,295,478) (8,225,555)
------------ ------------
$ - $ -
============ ============
At December 31, 2000, the Company has available approximately $16,133,583 in net
operating loss carryforwards available to offset future federal and state income
taxes, respectively, which begin to expire in 2020.
Tax rules impose limitations on the use of net operating losses following
certain changes in ownership. Such a change occurred in 1999 and 2000, which
will limit the utilization of the net operating losses in subsequent years.
-F-19-
NOTE 10 - COMMITMENTS AND CONTINGENCIES
A. Litigation
- -------------
Lease
In February 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.
The Company's magnetic resonance imaging ("MRI") system (the "Unit") currently
is installed in a mobile van at an operating site in Jefferson Valley, New York
and has been in use since September 1992. It is leased to Tri-County Mobile MRI,
L.P. ("Tri-County"), whose general partner is Diagnostics Resource Funding.
This lease provides for monthly payments of $37,926 to Venus Management, Inc.
("VMI") through August 1999 and $68,589 in September 1999 (with such payments
being guaranteed by Medical Funding of America, Inc. ("MFA")), and VMI is
required to make monthly installment payments (which include interest at 10.5%
per annum on the unpaid principal balance) for the Unit to a third party finance
company of $32,360 through August 1999 and $68,589 in September 1999. This lease
provides for a purchase option at the expiration of the initial term of such
lease equal to the then fair market value of the Unit.
Tri-County was delinquent in making certain of its lease payments to VMI under
the terms of the lease agreement concerning the Unit, and MFA failed to make
these payments to VMI under its guarantee of Tri-County's payments to VMI.
Accordingly, VMI had not made certain payments due to the third-party finance
company for the Unit.
-F-20-
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)
A. Litigation (continued)
- -------------------------
Lease (continued)
- -----------------
As a result, the third-party finance company issued a notice of default to the
Company. Tri-County is currently in discussions with the third-party finance
company to restructure the obligation, to assume the debt, and to take title to
the Unit. It is expected that the third-party finance company will accept the
restructure, and the Company will release its title to the equipment in exchange
for the third-party finance company releasing the Company from its debt
obligation. However, if the parties are unable to resolve this matter, it is
likely that the third-party finance company will institute an action against the
Company, VMI, and Tri-County for the balance due, plus other costs and relief.
-F-21-
Patent Claim
- ------------
An individual filed a complaint against the Company alleging breach of contract
and fraud and related business torts related to certain patents that the
plaintiff transferred to the Company. The Company believes that the plaintiff's
claims are without merit and intends to vigorously defend itself. The amount of
claimed damages is not yet determined.
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, 2000. However, there can be no assurance that the Company will
prevail in any of the above proceedings. In addition, 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.
-F-22-
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)
B. Leases
- ----------
Operating leases
The Company leases two facilities under non-cancelable operating lease
agreements. The first facility is located at 7348 Bellaire Avenue, North
Hollywood, CA and requires a monthly rental payment of $2,300. This lease
expires in May 2001 and the company has the right to renew the lease agreement
for an additional 12-month from that date. The second facility is located at
1429 South Robertson Blvd, Los Angeles, CA and requires a monthly rental payment
of $4,500. The term of the lease is six (6) years and expires in March 2005.
Rent expense for the years ended December 31, 2000 and 1999 was $60,501 and
$57,611 respectively.
Future minimum lease payments due under non-cancelable operating leases consist
of the following as of December 31, 2000:
2001 $ 81,600
2002 65,500
2003 54,000
2004 54,000
2005 13,500
-----------
Future minimum lease payments $ 268,600
===========
-F-23-
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)
Capital leases
- --------------
The Company maintains capital leases for some of its medical equipment and
autos. The following is a schedule by year of the approximate future minimum
lease payments required under these leases:
2001 $ 94,208
2002 78,776
2003 57,119
2004 3,976
----------
Future Minimum lease payments $ 234,079
Less amount representing interest 36,970
----------
Present value of minimum lease payments 197,109
Less current portion 73,262
----------
Long-term capital lease obligation $ 123,847
==========
The leased property under capital leases as of December 31, 2000 has a cost of
$304,899, accumulated amortization of $114,072 and a net book value of $190,827.
Amortization of the leased property is included in depreciation expense and
amounts to $35,572 for the year ended December 31, 2000.
Employment Agreements
- ---------------------
The Company has an employment agreement with its Chief Executive Officer that
has a term of three years and one month, ending May 1, 2003. Under this
agreement, the CEO receives an annual salary of $8,000.00 per month for the
first year, 8,333.33 per month for the second year and $9,583.00 for the third
year. Additionally, the CEO received an option to purchase 6,000,000 shares of
the Company's stock at an option price of $.05 per share. The option is
exercisable at any time and the payment of the option price may be deferred. The
CEO also receives a commission of 3% of the merger price for any mergers or
acquisitions completed by the Company during the term of the agreement.
-F-24-
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)
Employment Agreements (continued)
- ---------------------------------
The Company has an employment agreement with its President that has a term of
three years and one month ending May 1, 2003. Under this agreement, the CEO
receives an annual salary of $6,250.00 per month for the first year, $8,000 per
month for the second year and $9,200.00 for the third year. Additionally, the
President received an option to purchase 4,500,000 shares of the Company's stock
at an option price of $.05 per share. 2,250,000 of the shares are exercisable on
April 1, 2000 and 2,250,000 shares are exercisable on April 1,2001. The payment
of the option price may be deferred. The President also receives a commission of
1 1/2% of the merger price for any mergers or acquisitions completed by the
Company during the term of the agreement
The Company has an employment agreement with its Chief Financial Officer that
has a term of three years and one month ending May 1, 2003. Under this
agreement, the CFO receives an annual salary of $7,250.00 per month for the
first year, $8,000 per month for the second year and $9,200.00 for the third
year. Additionally, the CFO received an option to purchase 4,500,000 shares of
the Company's stock at an option price of $.05 per share. 2,250,000 of the
shares are exercisable on April 1, 2000 and 2,250,000 shares are exercisable on
April 1,2001. The payment of the option price may be deferred. The CFO also
receives a commission of 1 1/2% of the merger price for any mergers or
acquisitions completed by the Company during the term of the agreement
In October 5, 2000 the Company entered into a one-year employment agreement with
an automatic one-year extension with its Chief Technical Officer that provides
for a base salary and an option to purchase 500,000 shares of the Company common
stock. The Company will also grant the employee a 3-year option to purchase
additional 300,000 shares of the Company common stock.
An officer received 3,000,000 shares of the Company's stock during 1999 with a
market value of $60,000 as partial payment of employment liabilities. A former
officer received 4,000,000 shares of the Company's stock during 1999 with a
market value of $80,000 as payment of similar liabilities.
Consulting Agreements
- ---------------------
The Company has various consulting agreements that provide for issuance of the
Company's common stock and/or stock options/stock purchase warrants in exchange
for services rendered by the consultants. These agreements relate primarily to
raising of capital and professional services rendered in connection with the
Company's acquisition efforts.
NOTE 11 - STOCKHOLDERS' EQUITY & STOCK OPTIONS
Common Stock
- ------------
The Company issued common stock to related parties, noted as follows:
During the year ended December 31. 2000, three officers of the Company exercised
options and acquired 4,500,000 shares of the Company's common stock at prices
ranging from $.05-$.10 per share. Also, a director, before he was appointed, had
received an option to purchase 2,000,000 shares of the Company's common stock at
$0.05 in exchange for professional services.
During 1999, the former President of the Company received 4,000,000 shares of
common stock as repayment of prior amounts personally due him. In addition, this
former officer of the Corporation received 13,443,750
-F-25-
shares in the form of converted market value options granted for consulting
services at $.05 per share and shares issued for debt restructuring.
During 1999, the Company's Chief Executive Officer received 3,000,000 shares of
common stock as repayment of prior amounts personally due him.
During 1999, the new President of the Company exercised market value options and
acquired 1,250,000 shares of the Company's common stock at $.04 per share.
During 1999, the Chief Financial Officer of the Company received 1,200,000
shares of stock as compensation for services rendered during 1998 and 1999.
Stock Options and Warrants
- --------------------------
The Company has adopted the provisions of Financial Interpretation No. 44.
Accordingly, the Company applies APB Opinion No. 25 and related interpretations
in accounting for its plans for employees. If the Company had elected to
recognize compensation expense based upon the fair value at the grant date for
awards under this plan consistent with the methodology prescribed by SFAS No.
123, the Company's net loss and loss per share would be reduced to the pro forma
amounts indicated below for the years ended December 31:
1999 2000
------------- --------------
Net loss
As reported $ (472,537) $ (2,413,175)
Pro forma $ (488,522) $ (2,735,854)
Basic and diluted loss per common share
As reported $ (0.01) $ (0.02)
Pro forma $ (0.01) $ (0.03)
-F-26-
NOTE 11 - STOCKHOLDERS' EQUITY & STOCK OPTIONS (continued)
Stock Options and Warrants (continued)
- --------------------------------------
Options are granted at prices that are equal to the current fair value of the
Company's common stock at the date of grant. The Company records compensation
expense on options granted at prices below the current fair market value. The
vesting period is usually related to the length of employment or consulting
contract period.
The fair value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for the years ended December 31, 2000: dividend yield of 0%;
expected volatility of 300%; risk-free interest rate of 5.3%; and expected life
of 1 year; and 1999: dividend yield of 0%; expected volatility of 100%;
risk-free interest rate of 5.5%; and expected life of 1 to 1.5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
The weighted-average fair value of options granted during the years ended
December 31, 2000 and 1999 was $0.11 and $0.08, respectively.
The following table summarizes information with respect to stock options
outstanding and exercisable at December 31, 2000:
Options Outstanding
Options Exercisable
Weighted Weighted
Average Weighted Average Average
Exercise Number Exercise Remaining Number Exercise
Price Of Shares Price Contractual Life Of Shares Price
$ 0.05 11,700,000 $0.05 2.25 7,200,000 $0.05
$ 0.15 6,667 $0.15 1.50 6,667 $0.15
---------- ----- ---- --------- -----
11,706,667 $0.05 2.25 7,206,667 $0.05
========== ===== ==== ========= =====
-F-27-
NOTE 11 - STOCKHOLDERS' EQUITY & STOCK OPTIONS (continued)
Stock Options and Warrants (continued)
- --------------------------------------
The following summarizes the Company's stock option and warrants activity:
Warrants Weighted
And Average
Stock Options Exercise
Outstanding Price
----------- --------
Outstanding, December 31, 1998 1,405,692 $ 9.30
Granted 18,720,000 $ 0.05
Exercised (17,460,000) $ 0.05
Expired/Cancelled (687,692) $ 3.15
----------- --------
Outstanding, December 31,1999 1,978,000 $ 6.74
Granted 29,850,000 $ 0.05
Exercised (16,908,333) $ 0.10
Expired/Cancelled (1,463,000) $ 8.52
----------- --------
Outstanding December 31, 2000 13,456,667 $ 0.05
=========== ========
Exercisable, December 31, 2000 8,956,667 $ 0.05
=========== ========
The Company has 1,750,000 and 772,333 warrants outstanding as of December 31,
2000 and 1999, respectively. The exercise prices for the warrants range from
$0.15 to $45. On October 29, 2000 the Company issued warrants to purchase
1,500,000 shares of its common stock at an exercise price of $0.15.
NOTE 12 - EARNINGS PER SHARE
Earnings per share have been calculated using the weighted average number of
shares outstanding during each period. Earnings per share-dilutive does not
include the effect of 5,759,306 and 13,184,347 of dilutive shares for the years
ended December 31, 2000 and 1999 respectively. The net loss for the periods
ended December 31, 2000 and 1999 makes these shares anti-dilutive.
-F-28-
NOTE 13 - MERGER AGREEMENTS
Stason U.S. Pharmaceuticals, Inc.
- ---------------------------------
The Company entered into a letter of intent with Stason U.S. Pharmaceuticals,
Inc. (Stason). Under the agreement, Stason will receive a 17% interest in a
wholly owned subsidiary, YesRx.com, Inc., which was incorporated March 27, 2000.
In exchange, Stason provided Kaire Holding's subsidiary, YesRx.com, Inc, with
$175,000 in working capital. As of December 31, 2000, the parties were still
undecided about the details of this investment. This amount is disclosed as a
liability, an amount due Stason, in the financial statements.
In addition, Stason and Kaire merged their laboratory operations into a new
company called Stason Biotech, Inc. in which Stason and the Company own 60% and
40%, respectively, of the common stock of the newly formed Company. The Company
accounts for this investment using the equity method.
Classic Care Pharmacy, Inc.
- ---------------------------
In May of 2000, the Company acquired Los Angeles-based Classic Care pharmacy.
Classic Care Pharmacy provides specialized prescription medication services to
seniors living in extended care facilities in Southern California. Under the
merger agreement, the Company paid $1,000,000 in cash and issued 15,500,000
shares of common stock to acquire all the outstanding common stock (10,000
shares) of Classic Care Pharmacy. This agreement required that additional stock
be issued if the price of the trading price of the stock on the OTCBB was less
than $.50 per share on October 31, 2000.
This agreement was amended on December 6, 2000 to include additional cash
payments of $2,000,000, and to defer the determination date for any additional
shares to be issued under the merger agreement to October 31, 2001. The target
price of the acquisition was set at $9,500,000 and the value of public market
valuation of the 15,500,000 shares is required to be $6,500,000 or $.42 per
share on or before that date to meet the target price of $9,500,000.
If the price of the stock is not equal to or greater than $.42 per share during
the period December 6, 2000 through October 31, 2001, the Company will be
required to issue sufficient additional shares of Common Stock or pay additional
cash to insure that the total consideration paid for the acquisition is
$9,500,000. The additional stock must be issued or cash paid by November 30,
2001.
-F-29-
NOTE 13 - MERGER AGREEMENTS (continued)
Classic Care Pharmacy, Inc. (continued)
- ---------------------------------------
The acquisition was accounted for as a purchase in accordance with provisions of
APB 16. Under the purchase method of accounting, the purchase price is allocated
to the assets acquired and liabilities assumed based on their estimated fair
values at the date of the acquisition.
The purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values as determined by the Company:
Current assets $ 471,960
Fixed assets 282,485
Goodwill 9,478,732
--------------
Total assets acquired 10,233,177
Less liabilities assumed 733,177
--------------
Cost of net assets acquired $ 9,500,000
==============
Goodwill will be amortized on a straight-line basis over 20 years. Amortization
expense as of December 31, 2000 amounted to $276,465.
-F-30-
NOTE 13 - MERGER AGREEMENTS (continued)
Classic Care Pharmacy, Inc. (continued)
- ---------------------------------------
The following unaudited pro forma consolidated results of operations give effect
to the acquisition of Classic Care Pharmacy as if it occurred as of the
beginning of the periods presented below:
Kaire Holdings Inc
Consolidated Balance Sheet (Unaudited)
As of May 31, 2000
5/31/00 5/31/00 5/31/00
KAIRE CLASSIC CARE Adjust1 Adjust2 Adjust3 Pro forma
----- ------------ ------- ------- ------- ---------
Cash $ 565,158 $ - 565,158
Accounts Receivable 19,690 197,376 217,066
Inventory - 263,905 263,905
Other current assets 55,186 10,679 65,865
Property and Equip, net 13,714 282,485 296,199
Other assets 505,000 - 9,000,000 (9,500,000) 5,000
Goodwill - - 9,478,732 (197,475) 9,281,257
------------ -------- --------- ---------- ----------- -----------
Total Assets 1,158,748 754,445 9,000,000 (21,268) (197,475) $10,694,450
============ ======== ========= ========== =========== ===========
Accounts payable 114,338 452,792 567,131
Other liab & accrued exp 195,576 33,635 2,500,000 2,729,211
Other long-term liabilities 200,000 246,750 446,750
Convertible notes and accrued interest 289,320 - 289,320
Common stock 589,193 1,000 (1,000) 589,193
Additional paid in capital 31,548,162 103,439 6,500,000 (103,439) 38,048,162
Retained earnings (31,777,841) (83,171) 83,871 (197,475) (31,975,316)
------------ -------- --------- ---------- ----------- -----------
Total liabilities and Equity 1,158,748 754,445 9,000,000 (21,268) (197,475) $10,694,450
============ ======== ========= ========== =========== ===========
-F-31-
NOTE 13 - MERGER AGREEMENTS (continued)
Classic Care Pharmacy, Inc. (continued)
- ---------------------------------------
Kaire Holdings Inc
Consolidated Statement of Operations (pro forma):
For the 12 months ended 12/31/99
12/31/99 12/31/99 12/31/99
KAIRE CLASSIC CARE Adjust4 Pro forma
----- ------------ ------- ---------
Revenue $ 259,545 $4,865,420 $ 5,124,965
Cost of goods 89,245 3,301,805 3,391,050
---------- ----------- ----------
Gross profit 170,300 1,563,615 1,733,915
Operating expenses 1,014,296 1,228,465 (473,940) 1,768,821
---------- ----------- ----------
Income from operations (843,996) 335,150 (508,846)
Other expense (income) (375,059) 33,042 (342,017)
---------- ----------- ----------
Income before taxes (468,937) 302,108 (166,829)
Income taxes 3,600 4,822 8,422
------------ ---------- ----------- ----------
Net income (Loss) $ (472,537) $ 297,286 $ (473,940) (649,191)
Weighted average shares 36,251,628 10,000
============ ========== =========== ==========
Earnings (Loss) per share $ (0.013) $ 29.729
============ ==========
Kaire Holdings Inc
Consolidated Statement of Operations (pro forma):
For the 5 months ended 05/31/00
5/31/00 5/31/00
KAIRE CLASSIC CARE Adjust5 Pro forma
----- ------------ ------- ---------
Revenue 77,626 2,199,547 2,277,173
Cost of goods 81,594 1,626,319 1,707,913
----------- ----------- ---------- --------
Gross profit (3,967) 573,228 569,261
Operating expenses 388,648 713,050 (197,475) 904,224
----------- ----------- ---------- --------
Income from operations (392,615) (139,823) (532,438)
Other expense (income) 199,544 - 199,544
----------- ----------- ---------- --------
Income before taxes (592,159) (139,823) (731,982)
Income taxes 400 - 400
------------- ----------- ---------- --------
Net income (Loss) $ (592,559) $ (139,823) (197,475) (929,857)
Weighted average shares 109,193,033 10,000
============= ===========
Earnings (loss) per share $ (0.005) $ (13.982)
============= =========== ========== ========
NOTE 13 - MERGER AGREEMENTS (continued)
Classic Care Pharmacy, Inc. (continued)
- ---------------------------------------
The pro forma adjustments to the consolidated balance sheets are as follows:
Adjust1: To adjust the acquisition price to its actual value as if the business
combination occurred at the beginning of the period.
Adjust2: To eliminate the investment account, the equity accounts of the
subsidiary (Classic Care pharmacy), and record the value of goodwill.
Adjust3: To record five (5) months amortization of goodwill.
The pro forma adjustments to the consolidated income statements are as follows:
Adjust4: To record twelve (12) months of amortization expense of goodwill.
Adjust5: To record five (5) months of amortization expense of goodwill.
-F-32-
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2001 and December 31, 2000 (Audited)
LIABILITIES & STOCKHOLDER'S EQUITY 6/30/2001 12/31/2000
- ---------------------------------- ------------ ------------
Current Liabilities
Accounts Payable and Accrued Expenses $ 1,854,753 $ 1,960,029
Income Tax Payable 800 4,000
Due to Stason Biotech 175,000 175,000
Sales Tax Payable 19,415 5,727
Note Payable - Acquisition 1,074,881 1,301,000
Capital Leases-Short Term 30,734 73,262
------------ ------------
Total Current Liabilities 3,155,583 3,519,018
Convertible Notes Payable and Debentures 1,594,165 821,000
Capital Leases-Long Term 166,374 123,847
------------ ------------
Total Liabilities 4,916,122 4,463,865
------------ ------------
Stockholders' Equity
Common Stock, $0.001 par value 156,886 117,765
400,000,000 shares authorized; 126,765,036 and
117,765,033 shares issued & outstanding, respectively
Common Stock, Subscriptions Receivable (20,000)
Additional Paid-In Capital 41,960,873 40,671,855
Current Earnings (Loss)
(483,585) --
Accumulated Deficit (33,598,456) (33,598,456)
------------ ------------
Total Stockholders' Equity 8,035,718 7,171,164
------------ ------------
Total Liabilities and Stockholders' Equity $ 12,951,840 $ 11,635,029
============ ============
The accompanying notes are an integral part of these financial statements.
-F-33-
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2001 and December 31, 2000 (Audited)
ASSETS 6/30/2001 12/31/2000
- ------ ----------- -----------
Current Assets
Cash and Cash equivalents $ 3,261 $ 311,716
Accounts receivable, net of allowance for
doubtful accounts of $397,362 1,657,632 1,046,682
Inventory 749,951 385,219
Deposits 4,750 4,750
Other Current Assets 378,685 14,179
----------- -----------
Total current assets 2,794,279 1,762,546
Noncurrent Assets
Debt issuance costs 76,541 76,541
Property and Equipment
Net of Accumulated Depreciation 268,026 278,147
Note Receivable - Related Party 812,650 280,500
Investments 30,028 30,028
Other Non-Current Assets 5,000 5,000
Goodwill, net 8,965,316 9,202,267
----------- -----------
10,157,561 9,872,483
Total assets $12,951,840 $11,635,029
=========== ===========
The accompanying notes are an integral part of these financial statements.
(Continued)
-F-34-
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
---------------------------- ------------------------
2001 2000 2001 2000
------------ ------------ ----------- ---------
Revenues
Products & Services $ 3,687,328 $ 727,785 $ 7,223,858 $ 788,844
------------ ------------ ----------- ---------
Total Revenues 3,687,328 727,785 7,223,858 788,844
Cost of Goods Sold 2,507,036 464,914 5,619,923 495,984
------------ ------------ ----------- ---------
Gross Profit 1,180,292 262,871 1,603,935 292,860
------------ ------------ ----------- ---------
Operating Expenses
Depreciation and Amortization 123,579 0 125,884
Selling, general and administrative 899,807 352,491 1,678,098 587,943
------------ ------------ ----------- ---------
Total Operating Expenses 1,023,386 352,491 1,803,982 587,943
------------ ------------ ----------- ---------
Profit from Operations (loss) 156,906 (89,620) (200,047) (295,083)
------------ ------------ ----------- ---------
Other Income (Expenses)
Interest expense 0 0 (31,533) (14,544)
Other Expenses (15,140) (38,171) (251,605) (223,171)
------------ ------------ ----------- ---------
Total Other Income (Expenses) (15,140) (38,171) (283,138) (237,715)
------------ ------------ ----------- ---------
Loss before provision for state 141,766 (127,791) (483,185) (532,798)
------------ ------------ ----------- ---------
Provision for state income taxes 400 400 400 800
Net Income (Loss) $ 141,366 $ (128,191) $ (483,585) $(533,598)
------------ ------------ ----------- ---------
Basic Loss per Share 0.00 0.00 0.00 (0.01)
============ ============ =========== =========
Diluted Loss per Share 0.00 0.00 0.00 (0.01)
============ ============ =========== =========
Weighted average shares outstanding-
basic 146,595,859 77,974,715 115,928,137 76,694,180
Weighted average share outstanding-
diluted 146,595,859 77,974,715 115,928,137 76,694,180
============ ============ =========== ==========
The accompanying notes are an integral part of these financial statements.
-F-35-
KAIRE HOLDINGS INCORPORATED AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended June 30,
Unaudited Unaudited
2001 2000
--------- -----------
Net cash used in operating activties $(808,833) $ (352,720)
Cash flows from investing activities
Purchase of furniture, equipment and leases 42,527 (254,528)
Purchase of Goodwill (690,794)
Investment in affiliates (5,000)
--------- -----------
Net cash used in investing activities 42,527 (950,322)
Cash flows from financing activities
Other Investments
Due to Stason BioTech
Note Receivable - related party (532,151)
Proceeds from issuance of common stock 90,000 1,459,599
Proceeds from issuance of convertible notes 900,000
--------- -----------
Net cash provided by financing activities 457,849 1,459,599
--------- -----------
Net decrease in cash and cash equivalents (308,457) 156,557
Cash and cash equivalents, beginning of period 311,718 130,668
--------- -----------
Cash and cash equivalents, end of period 3,261 $ 287,225
========= ===========
Common Stock Issued for professional Services 590,000 94,500
Common Stock Issued for Interest on Notes 9,164 14,543
Common Stock for Conversion of Notes Payable 26,546
Common Stock Issued for other Compensation 240,000 240,000
Charge related to beneficial conversion feature
of Convertible Notes Payable/Debentures 88,704 10,000
--------- -----------
927,868 385,589
========= ===========
The accompanying notes are an integral part of these financial statements.
-F-36-
KAIRE HOLDINGS INCORPORATED and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 2001
1. Organization and Line of Business
- ------------------------------------
Since its formation in Delaware in 1986, Kaire has continuously been
involved in the health care market segment as a provider of unique quantitative
laboratory products and services to researchers, and specialized pharmacy care
to defined disease communities.
Kaire's primary business is providing specialized pharmacy care to patients
living in board and care facilities through its Classic Care Pharmacy, and also
to HIV patients through its YesRx Health Advocate Program.
YesRx.com, Inc:
Kaire formed YesRx in November 1999 as an Internet based e-commerce
pharmacy and drug store that provided a full range of traditional pharmacy and
drug store services supported by extensive health related information and
content. Initially, YesRx focused on providing specialized pharmacy care to
select chronic patients within the senior health care market segment. This
quarter, Kaire scaled back its YesRx.com e-commerce operations, reducing
operating expenses and reducing in headcount.
Stason Biotech, Inc:
In May of 2000, Kaire entered into a Letter of Intent with Stason USA, Inc,
which outlined a plan to merge Kaire's EZ-Trac Microspheres and Investigator
Partner Service laboratory business with a similar business operated by Stason
into a new entity.
In January 2001, Kaire finalized this agreement and transferred the assets
of EZ TRAC, Inc. to a new corporation, Stason Biotech, Inc., in exchange for 40%
of the outstanding common stock of the new corporation. This transaction
reflects management's strategic plan to move the Company from providing medical
testing and laboratory analysis to becoming a provider of prescription
medication and supplies to senior citizens and individuals needing chronic care
medications.
Stason Biotech initially will be engaged in the research and development of
compounds and testing measures for the treatment of pathogenic viral infections
and other medical applications related to solid form prescription drug formation
as well as providing contract research and development services to manufacturers
of pharmaceutical drugs.
Classic Care:
In May of 2000, Kaire acquired Los Angeles-based Classic Care pharmacy,
which, provides specialized pharmacy care services to bed and board facilities
throughout Los Angeles and Orange Counties in California.
-F-37-
YesRx Health Advocate Program:
In November 2000, Kaire introduced the YesRx Health Advocate Program; which
targets the unique pharmacy needs of specific chronic care communities. This
unique specialized pharmacy care program provides the tools, the knowledge and
support systems that enable HIV patients to manage a complicated drug regime
simply and effectively. The range of services provided by the Health Advocate
team members extends well beyond that of a typical pharmacy. To begin, HIV
Health Advocates typically come from the communities they serve. They process a
comprehensive understanding and working knowledge of the disease and the drugs
that treat it. They are counselors, they facilitating communication between
patients and their physicians, they help patients comply with their medication
regimes, they manage patient insurance claims, and more.
The Health Advocate program is based at Classic Care Pharmacy in Los
Angeles. From that location the program serves HIV patients in Los Angeles and
Orange counties in Southern California.
NetFame:
In July 2000, Kaire acquired the rights to the domain name "NetFame.com."
Kaire purchased the netfame.com domain address with the intention of developing
an interactive online exchange to facilitate communication between the planned
subscriber base consisting of emerging actors, models, and musicians, with
established industry agents. Due to current market conditions and the
unsuccessful attempts by potential NetFame competitors, Kaire has terminated the
NetFame.com operations.
Principles of Consolidation:
The consolidated financial statements include the accounts of Kaire and its
wholly owned subsidiaries (collectively the "Company"). The Company's
subsidiaries include See/Shell Biotechnology, Inc., Venus Management, Inc.,
Effective Health, Inc, and Classic Care Pharmacy, Inc. Only Classic Care
Pharmacy, Inc, has current operations; the remaining subsidiaries are recorded
as dormant. intercompany accounts and transactions have been eliminated upon
consolidation.
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 financial statements and disclosures included herein for the three
months ended June 30, 2001 and 2000 are unaudited. These financial statements
and disclosures have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of adjustments of a normal and
recurring nature) considered necessary for a fair presentation have been
included. Operating results for the three month periods ended June 30, 2001 and
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2001.
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
-F-38-
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 had 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. Convertible Debentures
- -------------------------
In January 2001, Kaire issued three convertible notes for $500,000, with
simple interest accruing at the annual rate of 8%. Interest payable on the Notes
shall accrue at the annual rate of 8% and be payable quarterly commencing April
1, 2001. The Holder shall have the right to convert the principal amount and
interest due under the notes into Shares of the Kaire's common stock. Kaire also
issued common stock purchase warrants with the right to purchase 1 million
shares of Common Stock of Kaire Holdings Incorporated.
We anticipate that the $500,000 convertible debentures will be converted
into shares in accordance with the terms of these debentures.
In May 2001, Kaire issued a convertible note for $400,000, with simple
interest accruing at the annual rate of 8%. Interest payable on the Notes shall
accrue at the annual rate of 8% and be payable
-F-39-
quarterly commencing September 30, 2001. The Holder shall have the right to
convert the principal amount and interest due under the notes into common shares
of Kaire. Kaire also issued common stock purchase warrants with the right to
purchase 1,500,000 shares of our commons stock
-F-40-
PART II. Information not Required in the Prospectus
- -----------------------------------------------------
Indemnification of Directors and Officer
- ----------------------------------------
The corporation shall, to the fullest extent permitted by Section 145 of the
General Corporation Law of the state of Delaware, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have the power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of the stockholders or disinterested Directors or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
Director, Officer, Employee or Agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
The Board of Directors of the Company may also authorize the Company to
indemnify employees or agents of the Company, and to advance the reasonable
expenses of such persons, to the same extent, following the same determinations
and upon the same conditions as are required for the indemnification of and
advancement of expenses to directors and officers of the Company. As of the date
of this Registration Statement, the Board of Directors has not extended
indemnification rights to persons other than directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act of 1933, as amended (the "Securities Act") and is therefore
unenforceable.
Other Expenses of Issuance and Distribution
- -------------------------------------------
Related to the securities being registered. The expenses shall be paid by the
Registrant.
SEC Registration Fee $ 5,058.53
Printing and Engraving Expenses $ 5,000.00
Legal Fees and Expenses $ 25,000.00
Accounting Fees and Expenses $ 10,000.00
Transfer Agent Fees $ 2,000.00
Blue Sky Fees $ 2,000.00
Miscellaneous $ 5,000.00
-------------
Total $ 54,058.53
Recent Sales of Unregistered Securities
- ---------------------------------------
For the Month of December 1999.
- -------------------------------
In December 1999, the Company issued 675,000 shares of common stock for
conversion of convertible debt valued at $33,740. The shares were issued
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933, as amended, as a "transaction not involving a public offering."
II-1
For the Quarter ending March 31, 2000.
- --------------------------------------
In January 2000, the Company issued 3,010,808 shares of common stock for
conversion of convertible debt valued at $134,000. The shares were issued
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933, as amended, as a "transaction not involving a public offering."
For Second Quarter ending June 30, 2000
- ---------------------------------------
In April 2000, the Company issued 300,000 shares of common stock for
exercise of options valued at $9,000. The shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering."
In May 2000 the Company issued 15,500,000 shares of common stock as part of
the purchase price for the acquisition of Classic Care Pharmacy. The shares were
issued pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933, as amended, as a "transaction not involving a public
offering."
In May 2000, the Company issued 1,000,000 shares of common stock for
exercise of options valued at $50,000. The shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering."
For Third Quarter ending September 30, 2000
- -------------------------------------------
In July and August 2000, the Company issued 724,000 shares of common stock
for exercise of options valued at $94,680. The shares were issued pursuant to
the exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering."
For the Fourth Quarter Ending December 31, 2000
- -----------------------------------------------
In October 2000, we issued an aggregate of $750,00 in convertible
debentures. In addition we issued 1,500,000 warrants to purchase our common
stock at an exercise price of $.1485. The shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering."
For the First Quarter Ending March 31, 2001
- -------------------------------------------
In January 2001, we issued an aggregate of $500,000 in convertible
debentures. In addition we issued 1,000,000 warrants to purchase our common
stock at an exercise price of $.1485. The shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering."
In January 2001, we issued 3,000,000 shares of common stock for options
exercised valued at $240,000. These options were issued to Kaire's management.
The shares were issued pursuant to the exemption provided for under Section 4(2)
of the Securities Act of 1933, as amended, as a "transaction not involving a
public offering."
In February 2001, we issued 6,000,000 shares of common stock for
professional services valued at $420,000. The shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering."
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For the Second Quarter Ending June 30, 2001
- -------------------------------------------
In May 2001, we issued a $400,000 in convertible debentures. In addition we
issued 1,500,000 warrants to purchase our common stock at an exercise price of
$.0396. The shares were issued pursuant to the exemption provided for under
Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not
involving a public offering."
In May 2001, we issued 6,000,000 shares of common stock for professional
services valued at $120,000. The shares were issued pursuant to the exemption
provided for under Section 4(2) of the Securities Act of 1933, as amended, as a
"transaction not involving a public offering."
As of August 17, 2001
- ---------------------
In August 2001, we issued a $300,000 in convertible debentures. In addition
we issued 1,500,000 warrants to purchase our common stock at an exercise price
of $.011. The shares were issued pursuant to the exemption provided for under
Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not
involving a public offering."
II-3
Item 27 Exhibits:
(a) Exhibits
3. Articles of Incorporation and bylaws of the Company, as amended.
(1)
4.1 Form of Warrant Agreement between the Company and Jersey Stock
Transfer and Trust Company, including the Form of Warrant (as
modified). (4)
4.2 Form of Stock Purchase Warrant (issued with promissory note). (2)
4.3 Convertible Debenture issued on August 20, 2001.
4.4 Stock Purchase Warrant issued on August 20, 2001.
5.1 Opinion re: Legality
10.1 License Agreement between F.A.T. Co. Research, Inc. and Dynamic
Products, Inc. (1)
10.2 Agreements between F.A.T. Co. Research, Inc. and Dr. Shell and
Jackie See for Development and Exploitation of Patented Invention.
(1)
10.3 Consulting Agreements between See/Shell and Drs. Dr. Shell And
Jackie See. (1)
10.4 Original Equipment Manufacturing Agreement between Olympus
Corporation and E-Z Trac, Inc. (3)
10.4 Distribution Agreement between E-Z Trac Inc., and Triton
Technology, Inc. (3)
10.5 Employment Agreement between the Company and William Peizer, Jr.
dated December 24, 1992. (4)
10.7 Agreement between William Peizer, Jr. and Clark M. Holcomb dated
February 1, 1993. (4)
10.8 Exchange of Stock Agreement and Plan of Reorganization among The
Company, Venus Management, Inc. and the stockholders of Venus
Management, Inc. (4)
10.9 Co-Management Agreements dated June 30, 1993 between Venus
Management, Inc. and Medical Funding of America, Inc. (4)
10.10 Agreement dated June 30, 1993 between Venus Management, Inc. and
Medical Funding of America, Inc. (4)
10.11 Letter dated August 20, 1993 between the Company and Lewis,
D'Amato, Brisbois & Bisgaard re Debt Conversion Agreement. (4)
10.12 Letter agreement dated March 13, 1993 between the Company and Clark
M. Holcomb; Sale of Stock Agreement, dated November 1, 1992 by and
between the Company and Clark M. Holcomb; and related Promissory
Note from Clark M. Holcomb to the Company. (4)
10.13 Agreement concerning MRI System, dated as of February 10, 1994 by
and between Siemens Credit Corporation, Venus Management, Inc., the
Company, Medical Funding of America, Inc. and Tri-County Mobile
MRI, L.P. and related Transfer of Interest Agreement, Corporate
Guaranty by the Company, Amendment to Promissory Note of Medical
Funding of America, Inc. payable to Siemens Credit Corporation and
Agreement concerning Lease Payment between Venus Management, Inc.
and Tri- County Mobile MRI, L.P. (4)
10.14 Agreement dated August 27, 1992 by and between Dr. William Shell
and Clark M. Holcomb related to shares of the Company's Common
Stock owned by Dr. Shell. (4)
II-4
10.15 Agreement dated September 23, 1993 by and between Ladenburg,
Thalmann Co., Inc. and the Company. (4)
10.16 Consulting Agreement for Financial Public Relations dated as of
February 25, 1994 by and between the Company and Robert Bienstock
and Richard Washor. (4)
10.17 License Agreement, dated March 23, 1994 by and between Effective
Health, Inc. and KCD Incorporated. (4)
10.18 Professional Services Agreement, dated April 15, 1994 by and
between RAI Finanz, and the Company. (4)
10.19 Consulting Agreement and Stock Plan dated as of August 25, 1994 by
and between the Company and Hy Ochberg. (4)
10.20 Memorandum of Understanding dated as of August 16,1994 by and
between the Company and Raifinanz (USA), Inc. (4)
10.21 Resonex Equipment Lease as of June 30, 1993 between Venus
Management Company and Medical Funding of America. (4)
10.22 Becton Dickenson Supply Agreement dated November 2, 1994. (4)
10.23 Form 12b-25 dated March 30,1995. (5)
10.24 2/nd/ & Final Revised Proposal to Acquire Pastels International,
Incorporated (6)
10.25 Revised Proposed Acquisition of Nutra Quest, Incorporated (6)
10.26 Number skipped
10.27 The 1998 Stock Compensation Plan (7)
10.28 The Amendment to the 1998 Stock Compensation Plan (8)
10.29 The 1999 Stock Compensation Plan (10)
10.30 The 2000 Stock Compensation Plan (11)
10.31 The Amendment to the 2000 Stock Compensation plan (12)
10.32 Subscription Agreement (13)
10.33 Convertible Debenture Agreement (13)
10.34 Form of Warrant Agreement (13)
10.35 Employment Agreement Mark Baum (13)
10.36 Employment Agreement Steven Westlund (13)
10.37 Employment Agreement Owen Naccarato (13)
10.38 Modification Agreement (Modifying Exhibit 10.32)(13)
10.39 Final Stason U.S.A. Agreement (13)
10.40 Amended Classic Care Purchase Agreement (13)
10.41 Subscription document dated August 20, 2001.
22.1 Subsidiaries of the Company & See/Shell Biotechnology, Inc. (1)
22.2 Subsidiaries of the Company & E-Z Trac, Inc.-Articles of
Incorporation, Amendments and By- Laws. (1)
22.3 Subsidiaries of the Company & Effective Health, Inc.- Articles of
Incorporation, Amendments and By-Laws. (1)
22.4 Subsidiaries of the Company & Venus Management, Inc. Certificate of
Incorporation, Amendments and By-Laws. (Included in Exhibit 10.9.)
23.1 Consent of Counsel (included in Exhibit 5.1)
23.2 Consent of Pohl, McNabola, Berg & Company LLP.
25. Subsidiaries of the Company. (4)
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(1) Previously filed as an exhibit to the Company's registration
statement on Form S-18, file number 33- 17548-NY, as amended
on August 7, 1990, and incorporated herein by reference.
II-5
(2) Previously filed as an exhibit to the Company's registration
statement on Form S-18, file number 33- 17548-NY, as amended
on February 12, 1991, and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Registration
statement on Form S-1 8, file number 33-17548-NY, as amended
on June 24, 1991, and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Registration
Statement on Form SB-2, file number 33- 51684-NY, as amended
on September 19, 1994, and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Form 10-QSB
filed for the quarterly period ended September 30, 1996.
(6) Previously filed as an exhibit to the Company's Form 10-KSB
filed for the period ended December 31, 1996.
(7) Incorporated by reference to the Company's Form S-8 dated
January 9, 1998 and filed with the Commission on January 9,
1998.
(8) Incorporated by reference to the Company's Form S-8 dated
March 25, 1998 and filed with the Commission on March 25,
1998.
(9) Incorporated by reference to the Company's Form S-8 dated
April 4, 1999 and filed with the Commission on March 19, 1999.
(10) Incorporated by reference to the Company's Form S-8 dated
October 15, 1999 and filed with the Commission on October 15,
1999.
(11) Incorporated by reference to the Company's Form S-8 dated
February 11, 2000 and filed with the Commission on February
11, 2000.
(12) Incorporated by reference to the Company's Form S-8 dated May
26, 2000 and filed with the Commission on May 26, 2000.
(13) Previously filed as an exhibit to the Company's Form 10-KSB
filed for the period ended December 31, 2000.
II-6
UNDERTAKINGS
The undersigned registrant hereby undertakes that it will:
Undertaking (a)
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth in the
registration statement; and arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) ('230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of the
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Undertaking (e)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-7
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of North
Hollywood, California 91605.
/s/ Steven R. Westlund
- -------------------------------------------------------
Steven R. Westlund Chief Executive Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated:
/s/ Steven R. Westlund August 23, 2001
- --------------------------------------------------------
Steven R. Westlund Chief Executive Officer and
Director
/s/ Owen M. Naccarato August 23, 2001
- ---------------------------------------------------------
Owen M. Naccarato Chief Financial Officer and Director
/s/ Asher Gottesman August 23, 2001
- -----------------------------------------------------------
Asher Gottesman, Director
II-8