Exhibit 10.42
WORKOUT AGREEMENT
WHEREAS, in May of 2000, Kaire Holdings, Inc. entered into an "Agreement and
Plan or Merger" ("Agreement") to purchase Classic Care, Inc. a California
corporation DBA Classic Care Pharmacy ("Classic Care") from Xxxxx Oscherowitz,
and Xxxxx Xxxxxxxxxx ("CC Owners");
WHEREAS, according to the terms of this Agreement, the CC owners were to receive
a combination of cash and Kaire Common Stock, totaling approximately USD $8
million, in exchange for 100% ownership of all Classic Care shares (the
"transaction");
WHEREAS, in December of 2000, both Kaire and the CC Owners executed a Second
Addendum to Agreement and Plan of Merger ("Addendum") wherein they modified the
value of the transaction and the terms of payment to the CC Owners
WHEREAS, according to the terms of the Addendum, the parties acknowledged
compliance with the prior terms of the Agreement, and imputed a new value of the
overall transaction as USD $9.5 million, to be paid in a combination of the
Kaire common stock and additional cash;
WHEREAS, the parties to the Agreement acknowledge that per the terms of the
Agreement and Addendum, Kaire has paid $1,662,500.00 in cash, 15,500,000 shares
of Kaire common stock valued at USD $.01 per share or USD $155,000.00, and
various other compensations (hereinafter collectively referred to as "CC
Compensation;"
WHEREAS, the parties to the aforementioned Agreement and Addendum intend to
reach a global settlement (i.e. "Work Out") of all rights and responsibilities
related to all transactions and agreements, verbal or written, related to the
Agreement and Addendum and any other agreements related thereto;
NOW, THEREFORE, in consideration of mutual promises, covenants, and agreements
contained herein, the parties agree as follows:
I. Terms
A. General
1. Kaire wishes to assign and transfer all of its rights to Classic Care
Pharmacy to the CC Owners in consideration of the CC Owners forgiving Kaire from
payment of any and all additional consideration related to the aforementioned
Agreement and Addendum, all parties assenting to the foregoing equity
distribution, and until the CC Owners acquire and transfer 100% ownership of a
fully licensed retail pharmacy to Kaire (according to the terms below), Classic
Care agrees to perform certain pharmacy-related services (outlined below in
section I.B.5) for Kaire and it's Health Advocate Program (the "HAP").
WORKOUT AGREEMENT
October 29, 2001
Page 2
2. For the purposes of this Work Out Agreement, the term "Classic
Care" shall refer to all of the business that Classic Care currently conducts,
excluding any and all HIV-related trade (designated as "Health Advocate Program"
or "HAP" or "Consumer Advocate Program" or "CAP" business).
B. Specific Terms
1. Assignment and Transfer of Rights.
-------------------------------------
a. Subject to the terms herein, Kaire will assign and transfer
All of it's rights to Classic Care Pharmacy to the CC Owners.
2. Changes to Classic Corporate Structure.
------------------------------------------
a. Increase its authorized common stock to 150,000,000:and
b. Authorize a class of "Series A Preferred", which will have the following
rights and privileges:
(1) 76 votes to each one common share outstanding.
There is no conversion to common share feature.
2.5 Outstanding One Year 4% Convertible Note.
---------------------------------------------
a. The CC Owners agree to hold a One Year 4% Convertible
Note (the "Note") in the amount of USD $2,000,000.00. The note will mature one
year hence ("Maturity Date"), and if not paid when due, Kaire will have the
option to return 2,000,000 of its shares of Classic Care to the note holders in
settlement of the note. Interest will be payable within 30 days of the maturity
date in cash or in Kaire common stock, or it may be offset against monies owed
related to section 4 of the Work Out Agreement.
3. The Health Advocate Program.
------------------------------
a. General
(1) The Health Advocate Program (which also may be
Referred to, as the "HAP" or "Consumer Advocate Program" or "CAP" is a program
that sells goods and services to HIV patients in Southern California. These
customers have been specifically designated as such under a specific account in
the Classic Care billing system.
WORKOUT AGREEMENT
October 29, 2001
Page 3
b. Specific
(1) Kaire will retain all of the accounts/customers
Related to the Health Advocate Program.
4. Kaire's New Retail Pharmacy.
------------------------------
a. CC Owners Agree to exercise their best efforts to obtain
100% ownership of a Southern California licensed retail pharmacy for Kaire
Holdings, within 12 months following the transfer and assignment of Classic Care
to the CC Owners: provided that the CC Owners shall have no liability to Kaire
if such facility is not secured for Kaire.
5. Pharmacy Management Services and Operations Agreement.
----------------------------------------------------------
a. General
Within 30 days of the date of the execution of this
Agreement, Kaire and CC will enter into a Pharmacy Management Services and
Operations Agreement whereby CC will provide certain a pharmacy management
services and operation services for Kaire. This agreement will be for a period
of twelve months. The cost of such services will be paid for by Kaire.
b. The cost due CC by Kaire will be determined on a
month-by-month basis reflecting various factors including the HAP performance.
6. Classic Care Equity Distribution.
-----------------------------------
a. General
The foregoing is a list of Classic Care shareholders of
Classic Care, Inc. equity. The shares below shall be registered with the
Securities Exchange Commission in a registration statement to be filed by the
parties.
b. Specific Issuances
(1) 3,900,000 common shares to Kaire;
(2) 6,000,000 common shares to CC Owners;
(3) 100,000 Series 'A' Preferred shares to CC Owners;
(4) 150,000 common shares to Xxxx Xxxxxxxxx;
(5) 150,000 common shares to Xxxx X. Xxxx;
WORKOUT AGREEMENT
October 29, 2001
Page 4
(6) 100,000 common shares to Stason Biotech;
(7) 300,000 common shares to Xxxxxx X. Xxxxxxxx; and
c. Employee Stock Options
(1) 400,000 common shares shall be designated and
Registered with 90 days of the effectiveness of the Classic Care registration
statement under an S-8.
7. Non-Compete Agreement.
----------------------
Within 30 days of the date hereof, Kaire and Classic Care agree to
Execute a non-compete agreement, which shall state that both parties agree to
not compete in their respective businesses and in their respective geographic
markets. For Kaire, this shall mean that it shall not compete for assisted
living customers in the greater Los Angeles area, and for Classic Care, it shall
mean that it shall not compete for HIV/AIDS
Business in the greater Los Angeles area. The agreement shall include a
provision for attorney's fees and there shall be a liquidated damages clause.
8. Non Performance
----------------
If Kaire is unsuccessful in obtaining the required shareholder
Approval for the spin-off, Kaire will return 85% ownership of Classic Care (the
"foreclosure Shares") back to the CC Owners as an accord and satisfaction of the
debt owed by Kaire to the CC Owners, it being acknowledged and agreed by Kaire
that the fair market value of 85% of Classic Care is substantially below the
amount owed by Kaire to the CC Owners. Upon such transfer of the Foreclosure
Share to the CC Owners, In addition, the CC Owners shareholders will cancel any
amounts due them by Kaire. The shareholder approval date shall be no later than
February 9, 2002. In connection herewith, Kaire agrees to deposit into a
mutually acceptable escrow the Foreclosure Share, duly endorsed for transfer to
the CC Owners in the event that the provisions of this Section 8 become
operable. If these provisions do not become operable, then the Foreclosure
Shares shall be voided and cancelled. Additionally, Kaire hereby agrees to
indemnify, defend and hold harmless the CC Owners from any claims by the
shareholders of Kaire that the transfer to the CC Owners of the Foreclosure
Shares was not duly approved of by the Shareholders.
II. General Terms
1. Choice of Law. This Agreement, and any dispute arising from the
---------------
relationship between the parties to this Agreement, shall be governed by
-
California law, excluding any laws that direct the application of another
jurisdiction's laws.
October 29, 2001
Page 5
2. Attorney Fees Provision. In any litigation, arbitration, or other
-------------------------
proceeding by which one party either seeks to enforce its rights under this
Agreement (whether in contract, tort, or both) or seeks a declaration of any
rights or obligations under this Agreement, the prevailing party shall be
awarded its reasonable attorney fees, and costs and expenses incurred.
3. Notice. Any notices required or permitted to be given hereunder shall be
------
given in writing and shall be delivered (a) in person, (b) by certified mail,
postage prepaid, return receipt requested, (c) by facsimile, or (d) by a
commercial overnight courier that guarantees next day delivery and provides a
receipt, and such notices shall be addressed as follows:
If to Kaire: Xxxxxx X. Xxxxxxxx
If to CC Owners: Xxxx Xxxxxxxxxx
Or to such other address as either party may from time to time specify in
writing to the other party. Any notice shall be effective only upon delivery,
which for any notice given by facsimile shall mean notice which has been
received by the party to whom it is sent as evidenced by confirmation slip.
3. Modification of Agreement. This Agreement may be supplemented, amended,
--------------------------
or modified only by the mutual agreement of the parties. No supplement,
amendment, or modification of this Agreement shall be binding unless it is in
writing and signed by all parties.
4. Entire Agreement. This Agreement and all other agreements, exhibits, and
----------------
schedules referred to in this Agreement constitute(s) the final, complete, and
exclusive statement of the terms of the agreement between the parties pertaining
to the subject matter of this Agreement and supersedes all prior and
contemporaneous understandings or agreements of the parties. This Agreement may
not be contradicted by evidence of any prior or contemporaneous statements or
agreements. No party has been induced to enter into this Agreement by, nor is
any party relying on, any representation, understanding, agreement, commitment
or warranty outside those expressly set forth in this Agreement.
5. Severability of Agreement. If any term or provision of this Agreement is
-------------------------
determined to be illegal, unenforceable, or invalid in whole or in part for any
reason, such illegal, unenforceable, or invalid provisions or part thereof shall
be stricken from this Agreement, and such provision shall not affect the
legality, enforceability, or validity of the remainder of this Agreement. If
any provision or part thereof of this Agreement is stricken in accordance with
the provisions of this section, then this stricken provision shall be replaced,
to the extent possible, with a legal, enforceable, and valid provision that is
as similar in tenor to the stricken provision as is legally possible.
October 29, 2001
Page 6
6. Separate Writings and Exhibits. All agreements, exhibits, schedule, or
--------------------------------
other separate writings related to this Agreement constitute a part of this
Agreement and are incorporated into this Agreement by this reference. Should
any inconsistency exist or arise between a provision of this Agreement and a
provision of any exhibit, schedule, or other incorporated writing, the provision
of this Agreement shall prevail.
7. Time of the Essence. Time is of the essence in respect to all provisions
-------------------
of this Agreement that specify a time for performance; provided, however, that
the foregoing shall not be construed to limit or deprive a party of the benefits
of any grace or use period allowed in this Agreement.
8. Survival. Except as otherwise expressly provided in this Agreement,
--------
representations, warranties, and covenants contained in this Agreement, or in
any instrument, certificate, exhibit, or other writing intended by the parties
to be a part of this Agreement, shall survive for two (2) years after the date
of this Agreement.
9. Ambiguities. Each party and its counsel have participated fully in the
-----------
review and revision of this Agreement. Any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not apply
in interpreting this Agreement. The language in this Agreement shall be
interpreted as to its fair meaning and not strictly for or against any party.
10. Waiver. No waiver of a breach, failure of any condition, or any right
------
or remedy contained in or granted by the provisions of this Agreement shall be
effective unless it is in writing and signed by the party waiving the breach,
failure, right, or remedy. No waiver of any breach, failure, rights, or remedy,
whether or not similar, nor shall any waiver constitute a continuing waiver
unless the writing so specifies.
11. Headings. The headings in this Agreement are included for convenience
--------
only and shall neither affect the construction or interpretation of any
provision in this Agreement nor affect any of the rights or obligations of the
parties to this Agreement.
12. Necessary Acts, Further Assurances. The parties shall at their own cost
----------------------------------
and expense execute and deliver such further documents and instruments and shall
take such
other actions as may be reasonably required or appropriate to evidence or carry
out the intent and purposes of this Agreement.
13. Execution. This Agreement may be executed in counterparts and by fax.
---------
14. Consent to Jurisdiction and Forum Selection. The parties hereto agree
---------------------------------------------
that all actions or proceedings arising in connection with this Agreement shall
be tried and litigated exclusively in the State and Federal courts located in
the County of Los Angeles, State of California. The aforementioned choice of
venue is intended by the parties to be mandatory and not permissive in
WORKOUT AGREEMENT
October 29, 2001
Page 7
nature, thereby precluding the possibility of litigation between the parties
with respect to or arising out of this Agreement in any jurisdiction other than
that specified in this paragraph. Each party hereby waives any right it may
have to assert the doctrine of forum non convenient or similar doctrine or to
object to venue with respect to any proceeding brought in accordance with this
paragraph, and stipulates that the State and Federal courts located in the
County of Los Angeles, State of California shall have in persona jurisdiction
and venue over each of them for the
Purpose of litigating any dispute, controversy, or proceeding arising out of or
related to this Agreement. Each party hereby authorizes and accepts service of
process sufficient for personal jurisdiction in any action against it as
contemplated by this paragraph by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in this Agreement. Any final judgment rendered against a party in any
action or proceeding shall be conclusive as to the subject of such final
judgment and may be enforced in other jurisdictions in any manner provided by
law.
15. Jury Trial Waivers. To the fullest extent permitted by law, and as
--------------------
separately bargained-for-consideration, each party hereby waives any right to
trial by jury in any action, suit, proceeding, or counterclaim of any kind
arising out of or relating to this Agreement.
16. Representation on Authority of Parties/Signatories. Each person signing
--------------------------------------------------
this Agreement represents and warrants that he or she is duly authorized and has
legal capacity to execute and deliver this Agreement. Each party represents and
warrants to the other that the execution and delivery of the Agreement and the
performance of such party's obligations hereunder have been duly authorized and
that the Agreement is a valid and legal agreement binding on such party and
enforceable in accordance with its terms.
17. Force Majeure. No party shall be liable for any failure to perform its
--------------
obligations in connection with any action described in this Agreement, if such
failure results from any act of God, riot, war, civil unrest, flood, earthquake,
or other cause beyond such party's reasonable control (including any mechanical,
electronic, or communications failure, but excluding failure caused by a party's
financial condition or negligence).
18. Assignment. Neither party shall voluntarily or by operation of law
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assign, hypothecate, give, transfer, mortgage, sublet, license, or otherwise
transfer or encumber all or part of its rights, duties, or other interests in
this Agreement or the proceeds thereof (collectively, "Assignment'), without the
other party's prior written consent. Any attempt to make an Assignment in
violation of this provision shall be a material default under this Agreement and
any Assignment in violation of this provision shall be null and void.
19. Arbitration. Any controversy, claim or dispute arising out of or
-----------
relating to this Agreement, shall be settled by binding arbitration in Los
Angeles, California. Such arbitration shall be conducted in accordance with the
then prevailing commercial arbitration rules of
WORKOUT AGREEMENT
October 29, 2001
Page 8
JAMS/Endispute ("JAMS"), with the following exceptions if in conflict: (a) one
arbitrator shall be chosen by JAMS; (b) each party to the arbitration will
Pay its pro rata share of the expenses and fees of the arbitrator, together with
other expenses of the arbitration incurred or approved by the arbitrator; and
(c) arbitration may proceed in the absence of any party if written notice
(pursuant to the JAMS' rules and regulations) of the proceedings has been given
to such party. The parties agree to abide by all decisions and awards rendered
in such proceedings. Such decisions and awards rendered by the arbitrator shall
be final and conclusive and may be entered in any court having jurisdiction
thereof as a basis of judgment and of the issuance of execution for its
collection. All such controversies, claims or disputes shall be settled in this
manner in
Lieu of any action at law or equity; provided however, that nothing in this
subsection shall be construed as precluding the bringing an action for
injunctive relief or other equitable relief. The arbitrator shall not have the
right to award punitive damages or speculative damages to either party and shall
not have the power to amend this Agreement. The arbitrator shall be required to
follow applicable law. IF FOR ANY REASON THIS ARBITRATION CLAUSE BECOMES NOT
APPLICABLE, THEN EACH PARTY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING
HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER MATTER INVOLVING THE PARTIES HERETO.
SIGNATURE LINES
IN WITNESS WHEREOF, this Consulting Agreement has been executed by the
Parties as of the date first above written.
CC Owners Kaire
/s/Xxxxx Oscherowitz /s/ Xxxxxx X. Xxxxxxxx
__________________________________ _____________________________
---------------------------------- -----------------------------
Xxxxx Oscherowitz Xxxxxx X. Xxxxxxxx
Chairman and CEO
/s/ Xxxxx Xxxxxxxxxx
__________________________________
Xxxxx Xxxxxxxxxx
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
C O N T E N T S
Report of Independent Certified Public Accountants F1
Consolidated Balance Sheets F2 - F3
Consolidated Statements of Operations F4
Consolidated Statements of Stockholders' Equity F5
Consolidated Statements of Cash Flows F6 - F8
Notes to Consolidated Financial Statements F9 - F40
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, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
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 raises 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.
As discussed in Note 3 to the financial statements, an error resulted in
understatement of previously reported goodwill, notes payable to related
parties, related accrued interest and retained earnings as of December 31, 2000.
Accordingly, the 2000 financial statements have been restated to correct this
error.
/s/Pohl, McNabola, Xxxx & Company LLP
Pohl, McNabola, Xxxx & Company LLP
San Francisco, CA
March 27, 2002
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
-------------------------
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 62,707 $ 311,716
Accounts receivable, net of allowance for doubtful
accounts of 201,360 and 397,362, respectively. . . . . 1,089,739 714,882
Other receivables. . . . . . . . . . . . . . . . . . . . 23,030 -
Inventory. . . . . . . . . . . . . . . . . . . . . . . . 728,410 385,219
Deposits . . . . . . . . . . . . . . . . . . . . . . . . 4,750 4,750
Amounts due from related parties . . . . . . . . . . . . 415,664 612,300
Other current asset. . . . . . . . . . . . . . . . . . . 14,686 14,179
------------------------
Total current assets . . . . . . . . . . . . . . . . . 2,338,986 2,043,046
------------------------
NONCURRENT ASSETS
Debt issuance costs. . . . . . . . . . . . . . . . . . . 88,124 76,541
Property and Equipment, net of accumulated depreciation. 200,952 278,147
Investments. . . . . . . . . . . . . . . . . . . . . . . 30,028 35,028
Goodwill, net of accumulated amortization. . . . . . . . 8,958,539 9,444,975
------------------------
Total noncurrent assets. . . . . . . . . . . . . . . . 9,277,643 9,834,691
------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $11,616,629 $11,877,737
========================
(continued)
The accompanying notes are an integral part of these financial statements.
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
2001 2000
----------------------------
CURRENT LIABILITIES
Accounts payable and accrued expense. . . . . . . . . . . . . $ 1,665,437 $ 1,968,779
Income tax payable. . . . . . . . . . . . . . . . . . . . . . 4,000 4,000
Due to Stason Biotech . . . . . . . . . . . . . . . . . . . . 175,000 175,000
Sales tax payable . . . . . . . . . . . . . . . . . . . . . . - 5,727
Note payable - acquisition. . . . . . . . . . . . . . . . . . 7,419,881 1,301,000
Notes payable - related parties . . . . . . . . . . . . . . . 250,000 250,000
Convertible notes - current portion . . . . . . . . . . . . . 598,383 71,000
Capital leases-short term . . . . . . . . . . . . . . . . . . 66,428 73,262
----------------------------
Total current liabilities . . . . . . . . . . . . . . . . . 10,179,129 3,848,768
LONG TERM LIABILITIES
Convertible notes payable and debentures. . . . . . . . . . . 429,964 750,000
Capital leases-long term. . . . . . . . . . . . . . . . . . . 69,863 123,847
----------------------------
Total long term liabilities . . . . . . . . . . . . . . . . 499,827 873,847
----------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . 10,678,956 4,722,615
----------------------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value
400,000,000 shares authorized; 277,041,071
and 117,765,033 shares issued and outstanding, respectively 277,042 117,765
Common Stock Subscriptions Receivable . . . . . . . . . . . . - (20,000)
Additional paid in capital. . . . . . . . . . . . . . . . . . 36,676,339 40,671,855
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (36,015,708) (33,614,498)
----------------------------
Total stockholders' equity. . . . . . . . . . . . . . . . 937,673 7,155,122
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . $ 11,616,629 $ 11,877,737
============================
The accompanying notes are an integral part of these financial statements.
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---------------------------
NET REVENUES $15,862,690 $5,707,700
COST OF GOODS SOLD . . . . . . . . . . . . . . 13,317,413 4,042,549
---------------------------
GROSS PROFIT . . . . . . . . . . . . . . . . . 2,545,277 1,665,151
---------------------------
OPERATING EXPENSES
Depreciation and amortization. . . . . . . . 579,957 336,917
General and administrative . . . . . . . . . 1,825,390 1,212,678
Rent . . . . . . . . . . . . . . . . . . . . 75,553 57,351
Salaries . . . . . . . . . . . . . . . . . . 2,054,696 2,615,132
Selling expense. . . . . . . . . . . . . . . 40,901 67,243
Debt issuance costs. . . . . . . . . . . . . 166,667 10,934
---------------------------
Total operating expenses . . . . . . . . . 4,743,164 4,300,255
---------------------------
LOSS FROM OPERATIONS . . . . . . . . . . . . . (2,197,887) (2,635,104)
---------------------------
OTHER INCOME (EXPENSES)
Interest expense . . . . . . . . . . . . . . (150,162) (41,352)
Non-cash miscellaneous income. . . . . . . . - 160,264
Shareholder fees . . . . . . . . . . . . . . (41,569) (3,369)
Write-down of accounts payable . . . . . . . - 60,812
Gain (loss) on disposal of assets. . . . . . (3,392) 28,509
Gain (loss) on investment. . . . . . . . . . (5,000) -
Equity in earnings of Stason Biotech . . . . - 5,028
Total other income (expenses). . . . . . . (200,123) 209,892
---------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES . . . . (2,398,010) (2,425,212)
PROVISION FOR INCOME TAXES . . . . . . . . . . 3,200 4,000
---------------------------
NET LOSS . . . . . . . . . . . . . . . . . . . $ (2,401,210) $ (2,429,212)
---------------------------
BASIC LOSS PER SHARE . . . . . . . . . . . . . $ (0.01) $ (0.02)
---------------------------
DILUTED LOSS PER SHARE . . . . . . . . . . . . $ (0.01) $ (0.02)
---------------------------
WEIGHTED-AVERAGE SHARES OUTSTANDING - BASIC. . 169,827,480 104,953,458
---------------------------
WEIGHTED-AVERAGE SHARES OUTSTANDING - DILUTED. 169,827,480 104,953,458
---------------------------
The accompanying notes are an integral part of these financial statements.
KAIRE HOLDING INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Common Additional
Common Stock Subscription Paid-In Accumulated
Shares Amount Receivable Capital Deficit Total
Balance, December 31, 1999. . 77,197,226 $ 77,197 - $$ 30,521,658 $(31,185,286) $ (586,431)
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. . . . . . - - - - (2,429,212) (2,429,212)
----------- ---------- -------- ------------- ----------- -----------
Balance, December 31, 2000. 117,765,033 $ 117,765 $ (20,000) $ 40,671,855 $(33,614,498) $ 7,155,122
----------- ---------- -------- ------------- ----------- -----------
Issued for conversion
of notes payable. . . . . 126,680,856 126,681 - 865,972 - 992,653
Issued for convertible
note interest . . . . . . . 5,428,516 5,429 - 28,360 - 33,789
Issued for professional
services. . . . . . . . . . 850,000 6,350 - 18,275 - 24,625
Conversion of stock options 16,650,000 11,150 - 126,853 - 138,003
Consulting expense recognized
in stock conversions . - - - 790,475 - 790,475
Issued for officers'
Compensation 9,666,666 9,667 - 237,000 - 246,667
Recognition of deferred
compensation expense . . - - - 142,549 - 142,549
Stock Subscriptions receivable. - - 20,000 - - 20,000
Adjustment for acquisition
of Classic Care. . . . . - - - (6,345,000) - (6,345,000)
Debt issuance costs . . - - - 140,000 - 140,000
Net loss. . . . . . . . - - - - (2,401,210) (2,401,210)
----------- ---------- -------- ------------- ----------- -----------
Balance, December 31, 2001. 277,041,071 $ 277,042 $ - $ 36,676,339 $(36,015,708) $ 937,673
----------- ---------- -------- ------------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
----------- ------------
Increase (decrease) in cash and cash equivalents
Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $(2,401,210) $(2,429,212)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization . . . . . . . . . . . . . . . 93,521 53,160
Amortization of goodwill. . . . . . . . . . . . . . . . . . 486,436 283,757
Allowance for bad debts . . . . . . . . . . . . . . . . . . - 396,362
Debt issuance costs . . . . . . . . . . . . . . . . . . . . 128,417 10,934
Common stock issued for services. . . . . . . . . . . . . . - 310,000
Common stock issued for professional services . . . . . . . 915,100 94,056
Common stock issued in payment of interest. . . . . . . . . 33,789 18,000
Common stock issued for other compensation. . . . . . . . . 77,185 -
Loss on disposal of assets. . . . . . . . . . . . . . . . . 3,392 -
Loss on investment. . . . . . . . . . . . . . . . . . . . . 5,000 -
Stock options issued for services at below the fair market
value of the stock on the date of the grant . . . . . . . - 1,577,265
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . - (59,616)
Non-cash other expenses (Income). . . . . . . . . . . . . . - (251,243)
----------- ------------
Total adjustments to net income . . . . . . . . . . . . . . $ (658,370) $ 3,463
----------- ------------
Cash flow from operating activities:
Changes in assets and liabilities
Trade accounts receivable . . . . . . . . . . . . . . . . . . $ (178,855) $(1,413,712)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (343,191) (385,219)
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . - (4,750)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . (23,030) -
Prepaid expenses and other current assets . . . . . . . . . . (507) (14,179)
Debt Issuance cost. . . . . . . . . . . . . . . . . . . . . . (11,583) (87,475)
Income and Sales tax payable. . . . . . . . . . . . . . . . . (5,726) 9,727
Accrued interest on convertible notes . . . . . . . . . . . . 74,524 14,602
Accrued interest on notes payable - related parties . . . . . 15,000 8,750
Accounts payable and accrued expenses . . . . . . . . . . . . (281,057) 1,303,566
----------- ------------
Cash flow generated by (used in) operating activities . . $(1,412,795) $ (565,227)
----------- ------------
Cash flow from investing activities:
Purchase of property, equipment and leaseholds. . . . . . . . $ (3,916) $ (48,823)
Note Receivable - related party, net. . . . . . . . . . . . . 196,636 (280,500)
Other Investments . . . . . . . . . . . . . . . . . . . . . . - (25,000)
Investment in YesRX (due to Stason) . . . . . . . . . . . . . - 175,000
----------- ------------
Net cash generated by (used in) investing activities. . . $ 192,720 $ (179,323)
----------- ------------
(continued)
The accompanying notes are an integral part of these financial statements.
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
Cash flow from financing activities:
Payment on Notes Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ (25,000)
Payment on Note payable - Classic Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (226,119) (1,699,000)
Capital lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60,818)
Common stock issued for options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,003 1,649,599
Notes payable - related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 250,000
Subscriptions received. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 -
Proceeds from convertible debenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000 750,000
Net cash generated by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . $ 971,066 $ 925,599
Net (decrease) increase in cash
and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (249,009) $ 181,049
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 311,716 130,667
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,707 $ 311,716
=========== ============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,957 $ -
=========== ============
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,200 $ 7,264
=========== ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 2001, the Company entered into the following
non-cash transactions:
Issued 132,109,372 shares of common stock for conversion of $992,653 of notes
payable, and $33,789 of accrued interest.
Issued 850,000 shares of common stock for professional fees valued at $24,625
Issued 16,650,000 shares of common stock for conversion of conversion of stock
options for consulting services valued at $890,475
Issued 9,666,666 shares of common stock for officers' compensation expense
valued at $389,216
(continued)
The accompanying notes are an integral part of these financial statements.
KAIRE HOLDINGS INCORPORATED
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
(CONTINUED):
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
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 9,728,732
-------------
10,483,177
Liabilities assumed:
Accounts payable 486,427
Long term liabilities 246, 750
-------------
733,177
Cost of net assets acquired $ 9,750,000
=============
Payment for net assets acquired:
Cash paid at closing 1,112,500
Notes issued to stockholders of
acquired company 1,887,500
Notes payable 250,000
15,499,999 shares issued for the acquisition 6,500,000
-------------
$ 9,750,000
The accompanying notes are an integral part of these financial statements.
KAIRE HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
-------------------------------------
Kaire Holdings Incorporated ("Kaire" or "the Company"), 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, and wellness and beauty products. XxxXx.Xxx focuses on
selling drugs for chronic care as opposed to emergency needs and works mainly
with the patient who has regular medication needs and requires 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. These
transactions reflected management's strategic plan to transform the Company from
a provider of medical testing and laboratory analysis to becoming a provider of
prescription medication and supplies to senior citizens and individuals needing
chronic care.
In May 2000, the Company acquired Classic Care, Inc. ("Classic Care"), which was
organized as a corporation in April 1997, under the Laws of the State of
California. Classic Care operates as an agency distributor of pharmaceutical
products, via a unique prescription packaging system for consumers at senior
assisted living and retirement centers in the Los Angeles area. Classic Care
purchases prescription drugs in bulk and fills prescriptions for individuals
living in the aforementioned facilities. Primary sales are to individuals and
consist of packaged prescription drugs in prescribed dosages. These packaged
drug sales are primarily paid for by Medi-Cal, and the balances of the sales
that are not covered by Medi-Cal are paid directly by individuals. Classic Care
bills Medi-Cal and other third-party payors on behalf of the customer and
receives payment directly from Medi-Cal.
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, Inc. (dba Classic
Care Pharmacy). Only Classic Care, Inc, has current operations; the remaining
subsidiaries are dormant. Intercompany accounts and transactions have been
eliminated upon consolidation.
The consolidated statements of operations, shareholders' equity and cash flows
for the year ended December 31, 2000, include activity for Classic Care Inc. for
the seven-month period starting June 1, 2000 (acquisition date) to December 31,
2000.
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. Significant
estimates include goodwill, allowance for doubtful accounts and third-party
contractual agreements.
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. There were no uninsured balances as of December 31, 2001.
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.
Net Client Revenue
--------------------
Net client revenue represents the estimated net realizable amounts from clients,
third-party payors, and others for sale of products or services rendered. For
revenue recognition, revenue is recorded when the prescription is filled or when
services are performed. A significant portion of revenue is from federal and
state reimbursement programs.
Third-Party Contractual Adjustments
-------------------------------------
Contractual adjustments represent the difference between Classic Care Pharmacy's
established billing rate for covered products and services and amounts
reimbursed by third-party payors, pursuant to reimbursement agreements.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Inventory
---------
Inventory consists primarily of pharmaceuticals and health care products and is
stated at the lower of cost or market on a first-in-first-out basis.
Property and Equipment
------------------------
Property and Equipment are stated at cost. Depreciation is computed for
financial reporting purposes using the straight-line method over the estimated
useful lives of the assets. Amortization of leasehold improvements is computed
using the straight-line method over the shorter of the remaining lease term or
the estimated useful lives of the improvements. The Company uses other
depreciation methods (generally accelerated) for tax purposes. Repairs and
maintenance that do not extend the useful life of property and equipment are
charged to expense as incurred. When property and equipment are retired or
otherwise disposed of, the asset and its accumulated depreciation are removed
from the accounts and the resulting profit or loss is reflected in income.
The estimated service lives of property and equipment are principally as
follows:
Leasehold improvements 3-7 years
Computers and equipment 3-5 years
Furniture & Fixtures 5-7 years
Software 3-5 years
Assets held under capital leases are recorded at the lower of the net present
value of the minimum lease payments or the fair value of the leased asset at the
inception of the lease. Amortization expense is computed using the
straight-line method over the shorter of the estimated useful lives of the
assets or the period of the related lease.
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.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
-------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes represents the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
Fair Value of Financial Instruments
---------------------------------------
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. 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 for stock options issued to
employees and has disclosed the pro forma effect of using the fair value based
method to account for its stock-based compensation.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (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.
Comprehensive Income (Loss)
-----------------------------
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). 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, 2001 and 2000, 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.
Investments in corporate equity securities of privately held companies, in which
the Company holds a less than 20% equity interest, are classified as long-term.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
------------------
The Company expenses advertising and marketing costs as they are incurred.
Advertising and marketing costs for the years ended December 31, 2001 and 2000
were $25,644 and $19,600, respectively.
Reclassifications
-----------------
Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 presentations. These reclassifications had no effect on
previously reported results of operations or retained earnings.
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. SFAS No. 133 does not 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. SFAS No. 137 does not 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. SFAS No. 138 does
not have a material impact on its financial position or results of operations.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Accounting Pronouncements (continued)
----------------------------------------------
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141") and
No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). SFAS No. 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS No. 142, goodwill and intangible
assets with indefinite lives are no longer amortized but instead tested for
impairment at least annually in accordance with the provisions of FAS No. 142.
FAS No. 142 will also require that intangible assets with definite lives be
amortized over their respective useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The provisions of this Statement are required to be applied starting with fiscal
years beginning after December 15, 2001. The Company will not continue to
amortize goodwill existing at December 31, 2001 until the new standard is
adopted and test goodwill for impairment in accordance with SFAS No. 121. The
Company will adopt the standard starting January 1, 2002, and is currently
evaluating the effect that adoption of the provisions of FAS No. 142 will have
on its results of operations and financial position. As of December 31, 2001,
the value of goodwill is $9,728,732, and the accumulated amortization of
goodwill is $770,193.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires liability recognition for obligations
associated with the retirement of tangible long-lived asset and the associated
asset retirement costs. The Statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with earlier application
encouraged. The implementation of SFAS No. 143 will not have a material affect
on the Company's results of operations or financial position.
In August 2001, the FASB issued SFAFS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of", in that it removes goodwill from its impairment scope and
allows for different approaches in cash flow estimation. However, SFAS No. 144
retains the fundamental provisions of SFAS No. 121 for (a) recognition and
measurement of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of. SFAS No. 144 also supersedes the business
segment concept in APB opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," in
that it permits presentation of a component of an entity, whether classified as
held for sale or disposed of, as a discontinued operation. However, SFAS No.
144 retains the requirement of APB Opinion No. 30 to report discontinued
operations separately from continuing operations. The provisions of this
Statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001 with earlier application encouraged.
Implementation of SFAS No. 144 will not have a material effect on the Company's
results of operations or financial position.
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
$2,401,210 and $2,429,212 for the years ended December 31, 2001 and 2000,
respectively. The Company also had a net working deficit of $7,840,144 and
$1,805,772 for the years ended December 31, 2001 and 2000 respectively.
Additionally, the Company must raise additional capital to meet its working
capital needs subsequent to the spin-off of Classic Care. If the Company is
unable to raise sufficient capital to fund its operations for the Health
Advocacy program, it might be required to discontinue operations. These factors
raise substantial 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 - PRIOR PERIOD ADJUSTMENT
During 2001, the Company discovered that its previously issued 2000 financial
statements understated goodwill and excluded notes payable and the related
accrued interest. The accompanying financial statements for 2000 have been
restated to reflect the recording and classification of these debt agreements as
a note payable to related parties. The effect of the restatement was to
increase net loss for 2000 by $16,041, net of related income tax of $0.
2001 2000
---- ----
Accumulated deficit at beginning of year $(33,614,498) $(31,185,286)
-------------
Net loss, as restated for 2000 (2,401,210) (2,429,212)
Accumulated deficit at end of year $(36,015,708) $(33,614,498)
------------- -------------
NOTE 4 - INVESTMENTS
Investments as of December 31, 2001 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 XxxXxxx.Xxx, an Internet venture, was written off
during 2001, due to XxxXxxx.Xxx ceasing operations.
NOTE 5 - ACCOUNTS RECEIVABLE - TRADE
In 2001 and 2000, approximately 78% and 81% of net revenues were derived under
federal and state third-party reimbursement programs. These revenues are based,
in part, on cost reimbursement principles and are subject to audit and
retroactive adjustment by the respective third-party fiscal intermediaries. In
the opinion of management, retroactive adjustments, if any would not be material
to the financial position, results of operations or cash flows of the Company.
The Company provides an allowance for doubtful accounts based upon its
estimation of uncollectible accounts. The Company bases this estimate on
historical collection experience and a review of the current status of trade
accounts receivable. It is reasonably possible that the Company's estimate of
the allowance for doubtful accounts will change. Trade accounts receivable are
presented net of an allowance for doubtful accounts of $201,360 and $397,362 at
December 31, 2001, and 2000, respectively.
As of December 31, 2000, the Company was owed $331,800 for sales to an entity
related to the managing director of Classic Care Pharmacy. This amount is
included in receivables from related parties.
NOTE 6 - INVENTORIES
Inventories consist of pharmaceuticals, medical supplies and equipment of
$728,410 and $385,219 for the years ended December 31, 2001 and 2000,
respectively. The Company regularly checks its inventory for any expired or
obsolete pharmaceuticals.
NOTE 7 - INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
2001 2000
---- ----
Goodwill, acquisition of
Classic Care, Inc. $9,728,732 $9,728,732
Less Accumulated Amortization (770,193) (283,757)
----------- -----------
$8,958,539 $9,444,975
Amortization expense for the periods ended December 31, 2001, and 2000 was
$486,436 and $283,757, respectively.
NOTE 8 - COMMON STOCK TRANSACTIONS
The common stock transactions during 2001 were as follows:
- The Company converted $992,653 in convertible notes payable into
126,680,855 shares of its common stock. The Company also converted $33,789 in
convertible note interest into 5,428,516 shares of its common stock.
- The Company allowed three officers of the Company to exercise their stock
options for 3,000,000 shares of common stock, in lieu of cash payments for
services provided to the Company. Additionally, these three officers converted
their stock options for 6,666,667 shares of common stock, and the Company
recognized $389,216 in compensation expense.
- The Company issued 850,000 shares of common stock, with a market value of
$24,625, for consulting services provided to the Company.
- The Company converted stock options into 16,650,000 shares of its common
stock. The Company received $38,003 in cash and recorded consulting expense of
$890,475.
NOTE 8 - COMMON STOCK TRANSACTIONS (continued)
The common stock transactions during 2000 were 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. Additionally, 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.
Additionally, the Company converted stock options into 9,956,980 shares of its
common stock. The value of these combined transactions was $1,649,599
- The Company converted $10,000 in convertible notes payable into 200,000
shares of its common stock. The Company also converted $18,000 in convertible
note interest into 389110 shares of its common stock.
- The Company issued 6,263,168 shares of common stock, with a market value
of $404,056, for consulting and professional services provided to the Company.
- The Company issued 550,000 shares of common stock, with a value of $5,000,
as part of its investment agreement with NetFame. Com.
- The Company converted $26,845 of debt into 596,550 shares of common stock.
- The Company issued 15,499,999 of its common stock with a value of
$6,500,000, per its acquisition agreement with Classic Care, Inc.
NOTE 9 - RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and certain related
parties:
Profit Ventures, Inc.
-----------------------
Xx. Xxxx Xxxxxxxxxx is the Managing Director of Classic Care, and his spouse is
a shareholder in the Company. Xx. Xxxxxxxxxx is also a trustee of the Shagrila
Trust, which is the parent company of Profit Ventures, Inc. In 2000, Classic
Care entered into an agreement with Profit Ventures, Inc., to purchase products
from Classic Care. Sales to Profit Ventures were $3,341,524 and $331,800 for
2001 and 2000, respectively. Sales to Profit represented 20.6% and 5.8% of the
Company's total revenue for 2001 and 2000, respectively. The amounts due from
Profit Ventures, Inc. are included in amounts due from related parties.
------
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
Xxxx Xxxxxxxxxx
----------------
Xx. Xxxxxxxxxx did not receive any compensation for the period starting November
1, 2001 to December 31, 2001 for serving as the Managing Director of Classic
Care. Xx. Xxxxxxxxxx has $20,000 in salary due from the Company for his
services during this period. The amount is included in the accrued liabilities.
Xx. Xxxxxxxxxx received advances from the Company totaling $3,500 and $44,000 in
2001 and 2000, respectively. In 2001, Xx. Xxxxxxxxxx repaid to the Company
$43,000, and the balance of $4,500 is included in Receivable from Related
Parties. In January 2002, Xx. Xxxxxxxxxx advanced $150,000 to the Company, which
was repaid by the Company. In February 2002, the Company advanced to Xx.
Xxxxxxxxxx $26,000, and the Company has received payments of $26,500 as of
February 28, 2002, which results in a balance of $4,000 due from Xx. Xxxxxxxxxx.
Transactions with Shareholders
--------------------------------
Xxx. Xxxxx Xxxxxxxxxx
At December 31, 2001, the Company has an unsecured note payable to Xxx. Xxxxx
Xxxxxxxxxx, a shareholder and an original owner of Classic Care. The borrowing
was due originally in October 2000, is now due on demand, and bears an interest
rate of 6% per annum. The outstanding balance on the note is $82,500. This
amount is classified as a Note Payable to Related Party.
Xxxxx Oscherowitz
Mr. Xxxxx Oscherowitz, a shareholder of the Company who was the majority
shareholder in Classic Care prior to its purchase by the Company, has an
agreement with the Company, under which he loaned funds to and borrowed funds
from the Company. In previous years, this individual has loaned to Classic Care
Pharmacy funds to meet its short-term working capital needs. The Company
advanced to this individual $2,701,572 during 2001, and he has repaid to the
Company $2,526,408 in 2001. The terms of the borrowings allow the Company to
request repayment on demand. The note receivable bears an interest rate of 5%,
which is waived if all amounts outstanding are paid by July 30, 2002. The
Company has a receivable from this individual of $411,164 and $236,000 as of
December 31, 2001 and 2000, respectively.
In January and February 2002, the Company advanced to Mr. Oscherowitz an
additional $189,000, and the Company has received payments of $50,500 as of
February 28, 2002.
At December 31, 2001, the Company has an unsecured note payable to Mr. Xxxxx
Oscherowitz, a shareholder and an original owner of Classic Care. The borrowing
was due originally in October 2000, is now due on demand, and bears an interest
rate of 6% per annum. The outstanding balance on the note is $167,500. This
amount is classified as a Note Payable to Related Party.
NOTE 10 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2001 and 2000 consisted of the following:
2001 2000
----- --------
Furniture and equipment $ 319,990 $ 319,990
Computers and equipment 311,353 307,172
Vehicles 46,153 41,783
Other depreciable assets 7,000 7,000
---------- ---------
684,496 675,945
Less accumulated depreciation and amortization (483,544) (397,798)
---------- ---------
Total $200,952 $278,147
---------- ---------
Depreciation and amortization expense for the years ended December 31, 2001 and
2000 was $93,521 and $53,160, respectively.
NOTE 11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 2001 and 2000 consisted of
the following:
2001 2000
----- ----------
Accounts payable $1,129,961 $1,480,217
Accrued professional and related fees 50,000 55,744
Accrued compensation and related payroll taxes 170,941 170,616
Accrued interest payable 310,757 244,983
Other accrued expenses 3,778 17,219
Total $1,665,437 $1,968,779
NOTE 12 - NOTE PAYABLE -ACQUISITION
As of December 31, 2001, the Company has a note payable outstanding of
$1,074,881 as a result of its acquisition of Classic Care Pharmacy, Inc. The
Company has a contingent liability of $6,345,00 due to the value of the
Company's common stock being less than $0.42 per share. The purchase agreement
for Classic Care stipulated that the value of the common stock issued to Classic
Care shareholders would be $6,500,000. The value of the stock at the date of
the new settlement agreement was $155,000. This interest-free note is payable
on demand, since the original maturity date was October 1, 2001. The Company
has negotiated a settlement with the note holders (see Note 19).
NOTE 13 - 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, 2001 and 2000. These notes are now due on
demand.
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. In 2001, the Company has converted $360,000 into its common
stock, and $390,000 of these notes are still outstanding as of December 31,
2001.
The convertible debentures amounting to $1,200,000 and $750,000, which were
issued during 2001 and 2000 respectively, 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
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.
In 2001, the Company obtained additional capital financing of $1,200,000 through
the issuance of convertible notes payable. The Company also issued warrants to
purchase 4,000,000 shares of the Company's common stock to various parties as
part of these agreements.
NOTE 13 - CONVERTIBLE NOTES PAYABLE AND DEBENTURES (CONTINUED)
Specifically, it issued warrants which are convertible into 4,000,000 shares of
common stock. Warrants for 1,000,000 shares bear an exercise price of $0.149,
which is based upon the lowest closing price for the five days preceding January
10, 2001. Warrants for 1,500,000 shares bear an exercise price of $0.039, which
is based upon the lowest closing price for the five days preceding May 9, 2001.
Warrants for 1,500,000 shares bear an exercise price of $0.011, which is based
upon the lowest closing price for the five days preceding August 17, 2001 The
exercise price is subject to adjustment and is tied to the being 110% of the
lowest closing price for the ten trading days preceding the exercise date;
- During January 2001, the Company issued convertible notes aggregating to
$500,000, which are due in January 2003. The notes have a stated interest rate
of 8% per annum, and interest is payable quarterly and the principal balance is
due at maturity. In 2001, the Company converted $85,000 into its common stock,
and $415,000 of these notes were still outstanding as of December 31, 2001.
- During May 2001, the Company issued a convertible note aggregating to
$400,000, which is due in May 2002. The note has a stated interest rate of 8%
per annum, and interest is payable quarterly and the principal balance is due at
maturity. In 2001, the Company converted $398,650 into its common stock, and
$1,350 of this note was still outstanding as of December 31, 2001.
- During August 2001, the Company issued a convertible note aggregating to
$300,000, which is due in August 2002. The note has a stated interest rate of
8% per annum, and interest is payable quarterly and the principal balance is due
at maturity. In 2001, the Company converted $149,003 into its common stock, and
$150,997 of this note was still outstanding as of December 31, 2001.
The total notes outstanding at December 31, 2001, and 2000, amounted to
$1,028,347 and $821,000 respectively, and the current portion is $598,383 and
$71,000 as of December 31, 2001 and 2000, respectively.
NOTE 14 - INCOME TAXES
Significant components of the provision for taxes based on income for the years
ended December 31 are as follows:
2001 2000
---- ------
Current
Federal $ - $ -
State 3,200 4,000
--------- ----------
3,200 4,000
--------- ----------
Deferred - -
Federal - -
--------- ----------
State
Provision for income taxes 3,200 $4,000
--------- ----------
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:
2001 2000
-------- --------
Income tax provisions (benefit) computed
at federal statutory rate. . . . . . . (35.00%) (34.00%)
State taxes. . . . . . . . . . . . . . . (8.84%) (8.84%)
Increase in the valuation allowance. . . (43.83%) (42.83%)
-------- -------
Total. . . . . . . . . . . . . . . . . (0.01%) (0.01%)
-------- -------
NOTE 14 - INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities for
income taxes consist of the following:
2001 2000
------------ ------------
Deferred tax asset
Net operating loss carryforwards $ 7,935,602 $ 6,911,627
Impairment of assets . . . . . . 2,032,518 2,032,518
Options/warrants . . . . . . . . 627,898 675,700
Other. . . . . . . . . . . . . . 135,439 223,641
------------ ------------
10,731,457 9,843,486
------------ ------------
Deferred tax liability
State income taxes . . . . . . . (1,129,813) (693,358)
------------ ------------
Net deferred tax asset . . . . . 9,601,644 9,150,128
------------ ------------
Valuation allowance. . . . . . . (9,601,644) (9,150,128)
------------ ------------
$ - $ -
------------ ------------
At December 31, 2001, the Company has available approximately $18,523,813 and
$6,834,845 in Federal and State 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.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Litigation
----------
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. The Company reached a tentative settlement with the
plaintiff. However, due to inaction on behalf of the plaintiff, the court has
scheduled a dismissal hearing on this matter.
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, 2001. 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 additional expense.
Other Litigation
During 2001, the Company was involved in various legal actions arising in the
normal course of business. Such matters did not have a material effect upon the
financial position of the Company.
Leases
------
Operating leases
The Company leased offices located at 0000 Xxxxxxxx Xxxxxx, Xxxxx Xxxxxxxxx, XX
under a non-cancelable operating lease agreement that requires a monthly rental
payment of $2,300. This lease expired in May 2001, and the Company consolidated
its offices with the offices of the pharmacy. The Company leases three
automobiles under non-cancelable operating lease agreements. The individual
automobile leases range in terms of thirty-six to thirty-nine months.
The pharmacy is located at 0000 Xxxxx Xxxxxxxxx Xxxx, Xxx Xxxxxxx, XX and
requires a monthly rental payment of $4,500. The term of the lease is six (6)
years and expires in March 2005.
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases (continued)
-------------------
Operating leases (continued)
Future minimum lease payments due under non-cancelable operating leases consist
of the following as of December 31, 2001
2002 $65,500
2003 54,000
2004 54,000
2005 13,500
--------
Future minimum lease payments $187,000
--------
Rent expense for the years ended December 31, 2001 and 2000 was $75,553 and
$57,351 respectively.
Capital leases
The Company maintains capital leases for some of its medical equipment and
certain autos. The following is a schedule by year of the approximate future
minimum lease payments required under these leases:
2002. . . . . . . . . . . . . . . . . . $ 79,753
2003. . . . . . . . . . . . . . . . . . 57,848
2004. . . . . . . . . . . . . . . . . . 8,609
2005. . . . . . . . . . . . . . . . . . 7,344
2006. . . . . . . . . . . . . . . . . . 2,129
Future Minimum lease payments . . . . . $155,683
---------
Less amount representing interest . . . (19,392)
Present value of minimum lease payments 136,291
Less current portion. . . . . . . . . . 66,428
Long-term capital lease obligation. . . $ 69,863
The leased property under capital leases as of December 31, 2001 has a cost of
$291,574, accumulated amortization of $155,634 and a net book value of $135,940.
Amortization of the leased property is included
in depreciation expense and amounts to $56,460 and $46,745 for the years ended
December 31, 2001 and 2000, respectively.
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements
----------------------
Chief Executive Officer Compensation
On April 1, 2000, Xx. Xxxxxxxx signed a three-year employment agreement. The
contract calls for Xx. Xxxxxxxx to be paid a base salary of $8,333 per month for
the first year of the term. Xx. Xxxxxxxx'x base salary was to increase 15% per
year for each of the second and third years per this agreement.
Although Xx. Xxxxxxxx'x Employment Agreement states that his salary is to be
$8,333 per month, his actual pay has been $4,000 per month. Xx. Xxxxxxxx is
entitled to be paid the balance of his monthly compensation in either cash or
equity. Additionally, Xx. Xxxxxxxx has been granted an option to purchase up to
6,000,000 shares of Kaire common stock over the next 5 years at an option price
of $0.05 per share. To date, Xx. Xxxxxxxx has exercised options to purchase
5,966,666 shares of common stock.
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.
Chief Financial Officer Compensation
On April 1, 2000, Xx. Xxxxxxxxx signed a three-year service agreement. The
contract calls for Xx. Xxxxxxxxx to be paid $7,250 per month for the first year
of the term. Xx. Xxxxxxxxx'x base compensation was to increase 15% per year for
each of the second and third years per this agreement.
Although Xx. Xxxxxxxxx'x Service Agreement states that his compensation is to be
$7,250 per month, his actual remuneration has been $4,000 per month. Xx.
Xxxxxxxxx is entitled to be paid the balance of his monthly compensation in
either cash or equity. Additionally, Xx. Xxxxxxxxx has been granted an option
to purchase up to 4,500,000 shares of Kaire common stock over the next 5 years
at an option price of $0.05 per share. To date, Xx. Xxxxxxxxx has exercised
options to purchase 3,500,000 shares of common stock.
Xx. Xxxxxxxxx resigned from his duties of Chief Financial Officer as of December
31, 2001. He is still the general counsel for the Company and provides other
financial consulting services.
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements (continued)
-----------------------------------
President's Compensation
On April 1, 2000, Xx. Xxxx signed a three-year employment agreement. The
contract calls for Xx. Xxxx to be paid a base salary of $6,250 per month for the
first year of the term. Xx. Xxxx'x base salary was to increase 15% per year for
each of the second and third years per this agreement.
Although Xx. Xxxx'x Employment Agreement states that his salary is to be $6,250
per month, his actual pay has been $4,000 per month. Xx. Xxxx is entitled to be
paid the balance of his monthly compensation in either cash or equity.
Additionally, Xx. Xxxx has been granted an option to purchase up to 4,500,000
shares of Kaire common stock over the next 5 years at an option price of $0.05
per share. To date, Xx. Xxxx has exercised options to purchase 3,500,000 shares
of common stock.
The President of the Company resigned effective December 31, 2001.
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. In 201, the Company issued stock options
convertible into 16,650,000 shares of common stock, and all these stock options
were converted into common stock during the year.
NOTE 16 - 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:
2001 2000
------------ ------------
Net loss
As reported . . . . . . . . . . . . . . $(2,401,210) $(2,429,212)
Pro forma . . . . . . . . . . . . . . . $(2,401,210) $(2,751,891)
Basic and diluted loss per common share
As reported . . . . . . . . . . . . . . $ (0.01) $ (0.02)
Pro forma . . . . . . . . . . . . . . . $ (0.01) $ (0.03)
NOTE 16 - 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. In 2001, all stock options granted were converted into common
stock, and the Company recorded the appropriate amount as compensation expense.
The fair value of these options and warrants 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 to 1.5 years; and 2001: dividend yield of 0%; expected volatility of 400%;
risk-free interest rate of 6.45%; and expected life of 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 was $0.11, and for
2001, the range was $0.01 to $0.15.
The following table summarizes information with respect to stock options
outstanding and exercisable at December 31, 2000:
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted
Outstanding Average Weighted Number Weighted
Range of as of Remaining Average Exercisable as Average
Exercise December Contractual Exercise of December Exercise
Prices 31, 2000 Life Price 31, 2000 Price
------------------- ---------- --------------- ----------
0.05 11,700,000 2.25 $0.05 7,200,000 $0.05
0.15 6,667 0.15 $0.15 6,667 $0.15
---------- ----------- --------- ----------- --------
11,706,667 2.25 $0.04 7,206,667 $0.05
NOTE 16 - STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants Outstanding Warrants Exercisable
Number Weighted
Outstanding Average Weighted Number Weighted
Range of as of Remaining Average Exercisable as Average
Exercise December Contractual Exercise of December Exercise
Prices 31, 2000 Life Price 31, 2000 Price
----------- --------- --------------- ----------
0.01 1,500,000 2.83 $0.05 1,500,000 $0.05
0.15 250,000 0.25 $0.15 250,000 $0.15
----------- --------- --------- ---------- -----
1,750,000 2.46 $0.04 1,750,000 $0.06
The following table summarizes information with respect to stock options
outstanding and exercisable at December 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------- ---------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable as Weighted
Range of as of Remaining Average of December Average
Exercise December Contractual Exercise 31, 2001 Exercise
Prices 31, 2001 Life Price Price
-------- ----------- ----------- --------- ------------ ------------
0.05 2,033,333 3.46 $ 0.05 2,033,333 $0.05
0.15 6,667 0.08 $ 0.15 6,667 $0.15
2,040,000 3.45 $0.06 2,040,000 $0.05
Warrants Outstanding Warrants Exercisable
Number Weighted
Outstanding Average Weighted Number Weighted
Range of as of Remaining Average Exercisable as Average
Exercise December Contractual Exercise of December Exercise
Prices 31, 2001 Life Price 31, 2001 Price
---------- ---------- -------------------- --------- --------------- ----------
0.01 1,500,000 2.67 $ 0.05 1,500,000 $0.01
0.03 1,500,000 2.42 $ 0.03 1,500,000 $0.03
0.15 2,500,000 1.91 $ 0.15 2,500,000 $0.15
5,500,000 2.26 $ 0.05 5,500,000 $0.08
NOTE 16- 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 31,1999 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 $ 0.04
Granted . . . . . . . . . . . 20,650,000 $ 0.04
Exercised . . . . . . . . . . (26,316,666) $ 0.04
Expired/Cancelled . . . . . . (250,000) $ 45.00
-------------- ---------
Outstanding December 31, 2001 7,540,000 $ 0.05
-------------- ---------
The Company has 5,500,000 and 1,750,000 warrants outstanding as of December 31,
2001 and 2000, respectively. The exercise prices for the warrants range from
$0.01 to $0.15. During 2001, the Company issued warrants to purchase 4,000,000
shares of its common stock at an exercise price of $0.01 to $0.15.
Certain warrants (convertible into 4,000,000 shares of common stock) have a
clause that causes the exercise price to be adjusted down, based on the quoted
share price for the preceding 10 days measured on the exercise date. The price
is 110% of the average quoted market price. The warrants expire 3-5 years from
the date of grant.
NOTE 17 - 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 potentially dilutive securities for the years ended
December 31, 2001 and 2000 respectively. The loss from operations and the net
loss for the years ended December 31, 2001 and 2000 make these securities
anti-dilutive.
NOTE 18 - 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, 2001, the parties
were still undecided about the details of this investment. This amount is
recorded 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.
NOTE 19 - CLASSIC CARE PHARMACY, INC.
Acquisition of Classic Care, 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 was required to be $6,500,000 or $0.42 per
share on or before that date to meet the target price of $9,500,000.
If the price of the stock was not equal to or greater than $0.42 per share
during the period December 6, 2000 through October 31, 2001, the Company was
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 was to be issued or cash paid by November 30,
2001.
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.
NOTE 19 - CLASSIC CARE PHARMACY, INC. (CONTINUED)
Acquisition of Classic Care, Inc. (continued)
--------------------------------------------------
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. . . . . . . . . . 9,728,732
--------------
Total assets acquired . . . 10,483,177
Less liabilities assumed. . 733,177
--------------
Cost of net assets acquired $ 9,750,000
--------------
Goodwill will be amortized on a straight-line basis over 20 years. Amortization
expense as of December 31, 2001 and 2000 amounted to $486,436 and $283,757,
respectively.
NOTE 19 - CLASSIC CARE PHARMACY, INC. (CONTINUED)
Acquisition of Classic Care, 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 Incorporated
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 - 9,250,000 (9,750,000) 5,000
Goodwill. . . . . . . . . . . . . . . . - - 9,728,732 (202,681) 9,526,051
-------------- --------- ---------- ------------ ---------- ---------
Total Assets. . . . . . . . . . . . . . 1,158,748 754,445 9,250,000 (21,268) (202,681) $10,939,244
-------------- --------- ---------- ------------ ---------- ---------
Accounts payable. . . . . . . . . . . . 114,338 452,792 567,130
Other liab & accrued exp. . . . . . . . 195,576 33,635 2,750,000 2,979,211
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) 83,171 (202,681) (31,980,522)
-------------- --------- ---------- ------------ ---------- ---------
Total liabilities and Equity. . . . . . 1,158,748 754,445 9,250,000 (21,268) (202,681) $10,939,244
-------------- --------- ---------- ------------ ---------- ---------
-------------- --------- ---------- ------------ ---------- ---------
NOTE 19 - CLASSIC CARE PHARMACY, INC. (CONTINUED)
Acquisition of Classic Care, Inc. (continued)
--------------------------------------------------
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 Adjust4 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) 573,228 569,260
-------------- ----------- ----------
Operating expenses. . . . . . . . . . . . . . . . 388,648 713,050 (202,681) 899,017
Income from operations. . . . . . . . . . . . . . (392,616) (139,822) (329,757)
-------------- ----------- ----------
Other expense (income). . . . . . . . . . . . . . 199,544 - 199,544
Income before taxes . . . . . . . . . . . . . . . (592,160) (139,822) (529,301)
-------------- ----------- ---------- ----------
Income taxes. . . . . . . . . . . . . . . . . . . 400 - 400
Net income (Loss) . . . . . . . . . . . . . . . . $ (592,560) $ (139,822) (202,681) (529,701)
-------------- ----------- ---------- ---------
Weighted average shares . . . . . . . . . . . . . 109,193,033 10,000
Earnings (loss) per share. . . . . . . . . . . . . $ (0.005) $ (13.982)
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 five (5) months of amortization expense of goodwill.
NOTE 19 - CLASSIC CARE PHARMACY, INC. (CONTINUED)
Spin-off of Classic Care
---------------------------
During 2001, the Company renegotiated with the original owners of Classic Care
for amounts due them under the original purchase agreement (as amended on
December 6, 2000) of their interests in Classic Care. The original Classic Care
shareholders negotiated a settlement with the Company due to the Company's
common stock not having achieved specified levels ($0.42 per share) during
designated periods subsequent to the acquisition. The revised settlement with
the original Classic Care owners resulted in the Company increasing its
liability to the original Classic Care Shareholders by $6,345,000 and reducing
additional paid-in capital by an equivalent amount.
The settlement agreement reached with the original Classic Care owners resulted
in the Company having to spin off Classic Care.
On November 1, 2001, Kaire Holdings entered into a new agreement with the
original owners of Classic Care, which received shareholder approval in February
2002, whereby Kaire will assign approximately fifty-four percent (54%) ownership
of the Classic Care Pharmacy ("CC") back to the original owners of the CC
pharmacy, with Kaire retaining approximately 35% of the equity in CC. In
consideration of the assignment, all amounts due the CC prior owners will be
deemed satisfied with the exception of a one-year 4% convertible note (the
"Note") in the amount of USD $2,000,000 that the original CC owners agree to
hold. This note is secured by the 2,000,000 shares of Classic Care common stock
held by Kaire. The note will mature one year from the date of the spin-off
("Maturity Date"), and if not paid when due, Kaire will have the option to
return 2,000,000 of its shares of Classic Care to the note holders in full
settlement of the principal and interest related to the note. Kaire intends to
dividend to Kaire shareholders approximately 49% of its position in CC.
Pursuant to this agreement, the Company has increased the note payable and
amounts due to the original Classic Care shareholders by $6,345,000 and reduced
additional paid-in capital by an equivalent amount due to the resolution of the
contingency involved with the original purchase.
The following Proforma balance sheets and income statements give effect to the
proposed spin-off of Classic Care as if it occurred as of the beginning of the
periods presented below:
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
BALANCE SHEET AND INCOME STATEMENT
DECEMBER 31, 2001
ELIMINATE
CONSOLIDATED CLASSIC CARE ELIMINATE
BALANCE 01/01/01- XXXXX XXX GOODWILL AND
12/31/01 12/31/01 12/31/01 PROGRAM RECORD DEBT
ASSETS
Cash $62,707 60,576 2,131
Accounts receivable . . . . . . . . . . . . . 1,112,769 1,112,769 - 129,124
Inventory . . . . . . . . . . . . . . . . . . 728,410 728,410 - -
Other current assets. . . . . . . . . . . . . 107,560 19,436 88,124
Property and equipment, net . . . . . . . . . 200,952 187,003 13,949
Notes receivable. . . . . . . . . . . . . . . 415,664 415,664 - -
Investments . . . . . . . . . . . . . . . . . 30,028 - 30,028
Investment in Classic Care. . . . . . . . . . - - - 3,900,000
Intercompany Receivable . . . . . . . . . . . - - - -
Other assets. . . . . . . . . . . . . . . . . - - -
Goodwill. . . . . . . . . . . . . . . . . . . 8,958,539 - 8,958,539 (8,958,539)
-------------- ----------- ---------- --------- ------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . $ 11,616,629 2,523,858 9,092,771 129,124 (5,058,539)
============== ============ =========== ============= ==============
LIABILITIES AND EQUITY
Accounts payable. . . . . . . . . . . . . . . $ 1,196,389 1,189,997 6,392
Other liabilities and accrued expenses. . . . 714,477 22,501 691,976
Note payable - Classic Care . . . . . . . . . - - - 2,000,000
Intercompany payable. . . . . . . . . . . . . - - -
Other long-term liabilities . . . . . . . . . 8,338,127 319,863 8,018,264 (7,419,331)
Convertible notes and accrued interest. . . . 429,964 - 429,964
Common stock. . . . . . . . . . . . . . . . . 277,041 1,000 276,041
Additional paid-in capital. . . . . . . . . . 36,676,339 103,439 36,572,900
Stockholders equity . . . . . . . . . . . . . - - - 341,124
Retained earnings . . . . . . . . . . . . . . (36,015,708) 887,058 (36,902,766) (212,000) 360,792
-------------- ----------- ---------- --------- ------------
TOTAL LIABILITIES AND EQUITY. . . . . . . . . $ 11,616,629 2,523,858 9,092,771 129,124 (5,058,539)
-------------- ----------- ---------- --------- ------------
============== ============= ============= ============ ============
REVENUES. . . . . . . . . . . . . . . . . . . -
Revenue . . . . . . . . . . . . . . . . . . . $ 15,862,690 15,848,128 14,562 1,122,774
Cost of goods . . . . . . . . . . . . . . . . 13,317,413 13,317,413 - 1,067,136
-------------- ----------- ---------- --------- ------------
GROSS PROFIT. . . . . . . . . . . . . . . . . 2,545,277 2,530,715 14,562 55,638
EXPENSES
Operating expenses. . . . . . . . . . . . . . 4,743,164 1,851,226 2,891,938 215,926
-------------- ----------- ---------- --------- ------------
Income (loss) from operations . . . . . . . . (2,197,887) 679,489 (2,877,376) (160,288)
Intercompany charges. . . . . . . . . . . . . 419,778 (419,778) (419,778)
Other expenses (income) . . . . . . . . . . . 200,123 (19,753) 219,876
-------------- ----------- ---------- --------- ------------
Income before taxes . . . . . . . . . . . . . (2,398,010) 279,464 (2,677,474) (160,288)
Income taxes. . . . . . . . . . . . . . . . . 3,200 - 3,200
-------------- ----------- ---------- --------- ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . $ (2,401,210) 279,464 (2,680,674) (160,288)
============== ============ ============ ============ ============
Weighted average shares . . . . . . . . . . . 169,827,480
Earnings (loss) per share . . . . . . . . . . (0.014)
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
BALANCE SHEET AND INCOME STATEMENT
DECEMBER 31, 2001
PROFORMA
BALANCE
------------
ASSETS
Cash 2,131
Accounts receivable 129,124
Inventory -
Other current assets 88,124
Property and equipment, net 13,949
Notes receivable -
Investments 30,028
Investment in Classic Care 3,900,000
Intercompany Receivable -
Other assets -
Goodwill -
------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . 4,163,356
=============
LIABILITIES AND EQUITY
Accounts payable 6,392
Other liabilities and accrued expenses 691,976
Note payable - Classic Care 2,000,000
Intercompany payable -
Other long-term liabilities 598,933
Convertible notes and accrued interest 429,964
Common stock 276,041
Additional paid-in capital 36,572,900
Stockholders equity 341,124
Retained earnings . . . . . . . . . . . . . . (36,753,974)
------------
TOTAL LIABILITIES AND EQUITY. . . . . . . . . 4,163,356
============
REVENUES
Revenue 1,137,336
Cost of goods 1,067,136
------------
GROSS PROFIT. . . . . . . . . . . . . . . . . 70,200
EXPENSES
Operating expenses 3,107,864
-------------
Income (loss) from operations . . . . . . . . (3,037,664)
Intercompany charges (419,778)
Other expenses (income) 219,876
-------------
Income before taxes . . . . . . . . . . . . . (2,837,762)
Income taxes 3,200
NET INCOME (LOSS) . . . . . . . . . . . . . . (2,840,962)
============
Weighted average shares 169,827,480
Earnings (loss) per share (0.019)
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
BALANCE SHEET AND INCOME STATEMENT
DECEMBER 31, 2000
ELIMINATE
CONSOLIDATED CLASSIC CARE ELIMINATE
BALANCE 06-01/00- XXXXX XXX GOODWILL AND
12/31/00 12/31/00 12/31/00 PROGRAM RECORD DEBT
ASSETS
Cash $311,716 205,424 106,292 -
Accounts receivable. . . . . . . . . . . . . 714,882 1,046,682 (331,800) 65,596
Inventory. . . . . . . . . . . . . . . . . . 385,219 385,219 - -
Other current assets . . . . . . . . . . . . 95,470 18,929 76,541 -
Property and equipment, net. . . . . . . . . 278,147 250,684 27,463 -
Notes receivable . . . . . . . . . . . . . . 612,300 280,500 331,800 -
Investments. . . . . . . . . . . . . . . . . 35,028 - 35,028 -
Investment in Classic Care . . . . . . . . . - - - - 3,900,000
Goodwill . . . . . . . . . . . . . . . . . . 9,444,975 - 9,444,975 - (9,444,975)
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 11,877,737 2,187,438 9,690,299 65,596 (5,544,975)
LIABILITIES AND EQUITY
Accounts payable . . . . . . . . . . . . . . $ 1,480,217 1,476,058 4,159 -
Other liabilities and accrued expenses . . . 996,551 88,739 907,812 -
Note payable - Classic Care. . . . . . . . . - - - - 2,000,000
Other long-term liabilities. . . . . . . . . 1,424,847 (89,391) 1,514,238 -
Convertible notes and accrued interest . . . 821,000 - 821,000 -
Common stock . . . . . . . . . . . . . . . . 117,765 1,000 116,765 -
Additional paid-in capital . . . . . . . . . 40,651,855 103,439 40,548,416 -
Stockholders equity. . . . . . . . . . . . . - - - 16,576
Retained earnings. . . . . . . . . . . . . . (33,614,498) 607,593 (34,222,091) 49,020 (7,544,975)
------------ ------------ ----------- ------------ -------------
TOTAL LIABILITIES AND EQUITY . . . . . . . . $ 11,877,737 2,187,438 9,690,299 65,596 (5,544,975)
============= =========== =========== ============ ============
REVENUES . . . . . . . . . . . . . . . . . . -
Revenue. . . . . . . . . . . . . . . . . . . $ 5,707,700 5,624,827 82,873 174,922 -
Cost of goods. . . . . . . . . . . . . . . . 4,042,549 3,761,756 280,793 166,498 -
------------ ------------ ----------- ------------ -------------
GROSS PROFIT . . . . . . . . . . . . . . . . 1,665,151 1,863,071 (197,920) 8,424 -
EXPENSES
Operating expenses . . . . . . . . . . . . . 4,300,256 1,885,360 2,414,896 25,000 -
------------ ------------ ----------- ------------ -------------
Income (loss) from operations. . . . . . . . (2,635,105) (22,289) (2,612,816) (16,576) -
Eliminate goodwill . . . . . . . . . . . . . - - - - (283,757)
Other expenses (income). . . . . . . . . . . (209,893) - (209,893) - -
------------ ------------ ----------- ------------ -------------
Income before taxes. . . . . . . . . . . . . (2,425,212) (22,289) (2,402,923) (16,576) 283,757
Income taxes . . . . . . . . . . . . . . . . 4,000 800 3,200 - -
------------ ------------ ----------- ------------ -------------
NET INCOME (LOSS). . . . . . . . . . . . . . $ (2,429,212) (23,089) (2,406,123) (16,576) 283,757
============= =========== =========== ============ ============
Weighted average shares. . . . . . . . . . . 104,953,458
Earnings (loss) per share. . . . . . . . . . (0.02)
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
BALANCE SHEET AND INCOME STATEMENT
DECEMBER 31, 2000
PROFORMA
BALANCE
ASSETS
Cash 106,292
Accounts receivable (266,204)
Inventory -
Other current assets 76,541
Property and equipment, net 27,463
Notes receivable 331,800
Investments . . . . . . . . 35,028
Investment in Classic Care . 3,900,000
Goodwill . . . . . . . . . . . . . . . . . . -
============
TOTAL ASSETS . . . . . . . . . . . . . . . . 4,210,920
LIABILITIES AND EQUITY
Accounts payable 4,159
Other liabilities and accrued expenses 907,812
Note payable - Classic Care. . . . . . . . . 2,000,000
Other long-term liabilities 1,514,238
Convertible notes and accrued interest 821,000
Common stock 116,765
Additional paid-in capital 40,548,416
Stockholders equity 16,576
Retained earnings. . . . . . . . . . . . . . (41,718,046)
------------
TOTAL LIABILITIES AND EQUITY . . . . . . . . 4,210,920
============
REVENUES
Revenue. . . . . . . . . . . . . . . . . . . 257,795
Cost of goods. . . . . . . . . . . . . . . . 447,291
------------
GROSS PROFIT . . . . . . . . . . . . . . . . (189,496)
EXPENSES
Operating expenses . . . . . . . . . . . . . 2,439,896
------------
Income (loss) from operations. . . . . . . . (2,629,392)
Eliminate goodwill . . . . . . . . . . . . . (283,757)
Other expenses (income). . . . . . . . . . . (209,893)
Income before taxes. . . . . . . . . . . . . (2,135,742)
Income taxes . . . . . . . . . . . . . . . . 3,200
NET INCOME (LOSS). . . . . . . . . . . . . . (2,138,942)
============
Weighted average shares 104,953,458
Earnings (loss) per share (0.02)
KAIRE HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 20 - SUBSEQUENT EVENTS
At the annual meeting in February 2002, shareholders approved and consented to
amend the Company's restated Certificate of Incorporation to increase the number
of authorized shares of common stock from 400,000,000 to 900,000,000 shares.
The principal purpose of this amendment to the Certificate was to authorize
additional shares of Common Stock that would be available to 1) provide for the
conversion of existing debt, 2) facilitate the possible raising of additional
capital through the sale of securities, 3) grant options or other stock
incentives to the Company's employees, 4) for a possible acquisition of another
company or its business or assets, and 5) seek to establish a strategic
relationship with a corporate partner.
As of the date of this Proxy in February 2002, Kaire had $978,582 of convertible
notes remaining on the Balance Sheet.
These notes bear interest at 8% per annum and are convertible into common stock
at the lesser of:
(a) $0.0073; or
(b) 80% of the average of the three lowest closing prices of common stock
for the sixty trading days immediately prior to the conversion date.
Common stock transactions
---------------------------
During the period of January 1 to March 27, 2002, the Company converted $135,822
in convertible notes payable into 53,021,782 shares of its commons stock.
During the period of January 1 to March 27, 2002, the Company converted $11,385
in convertible note interest into 4,851,212 shares of its commons stock.
Stock options
--------------
During the period January 1, 2001 to March 27, 2001, the Company issued stock
options to consultants allowing them to purchase up to 15,000,000 shares of
common stock at an exercise price of $0.01 per share. The exercise price is
equivalent to the market price on the date of the grant. The stock options were
issued pursuant to a consulting service agreement.
The exercise period for the options is for 5 years from the date of the grant.
