U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-KSB





(Mark
One)


[X]
    ANNUAL
      REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934. For the fiscal year ended December 31, 2004.





[ 
      ]
    TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934. For the transition period from _______ to
________





Commission
file number 0-21384





KAIRE
HOLDINGS INCORPORATED


(Name of
small business issuer in its charter)








**Delaware**
    **8980**
    **13-3367421**(State
      or other jurisdiction of
    (Primary
      Standard Industrial
    (I.R.S.
      Employerincorporation
      or organization)
    Classification
      Code Number )
    Identification
      No.)








5520
      Sespe Avenue, Suite D, Fillmore , CA
    93015(Address
      of principal executive offices)
    (Zip
      code)





Registrant's
Telephone number, including area code: (805) 524-0024





Securities
registered under 12(b) of the Exchange Act:  None





Securities
registered under Section 12(g) of the Act:  Common
Stock





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes  - X No
___





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation
S-B is not contained herein, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.





The
issuer had net revenues of $2,350,847 for the fiscal year ended December 31,
2004.





The
aggregate market value of the voting stock held by non-affiliates on May 20,
2005 was approximately $821,438  based on
the average of the bid and asked prices of the issuer’s common stock in the
over-the-counter market on such date as reported by the OTC Bulletin Board. As
of December 31, 2004, 30,877,252 shares of the issuer’s Common Stock were
outstanding. As of May 31, 2005, 33,877,252 shares of the issuer’s Common Stock
were outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





Transitional
Small Business Disclosure Format  Yes   No X





1















PART I


**ITEM
1. Description of Business**





Business





Present
Business





Kaire
provides both retail and long term care pharmacy services. Long term pharmacy
care services focus on the following: 1) helping chronically ill patients
residing in assisted living facilities maintain compliance with their medication
therapies; 2) monitoring any adverse drug reactions and 3) assist the long term
care providers monitor patient progress. Specialized long term care services
include providing the patients their monthly cycle medications, providing the
long term care providers with in service training and drug education, including
providing detailed policies and procedures manuals, provide monthly reviews of
patient drug regimes and processing all patient insurance claims. Specialized
products include unit dose bubble pack of individual patient’s medication,
secure mobile medication carts, and emergency medication kits for night or
weekend patient emergencies.





These
services are now provided through our subsidiary Effective Health, Inc., which
on January 26, 2003 acquired certain assets of Sespe Pharmacy, which is located
in Fillmore, California, and also the location of our corporate office. Sespe
Pharmacy was strictly a retail pharmacy with a walk-in customer base that
dispensed approximately 30 to 50 retail prescriptions per day. We purchased the
assets of Sespe Pharmacy with the intention it would serve as our base of
pharmacy operations for long term care facilities. Though we have maintained
Sespe Pharmacy’s retail business, we mainly use Sespe Pharmacy as the center for
disbursing retail and long term care prescriptions, incontinence supplies and
durable medical equipment required by our client long-term facilities. We
service approximately 15 medium to small residential board and care facilities
delivering an average of 80 prescriptions each day. We are not dependent upon
any one facility for the majority of our revenue. We also continue to fill
retail prescriptions at Sespe Pharmacy and currently fill approximately 30
prescriptions a day.





History





Kaire
Holdings Incorporated (“Kaire”), a Delaware corporation, was incorporated on
June 2, 1986 as Interactive Medical Technologies, Ltd. (“IMT”). Effective
February 3, 1998, Kaire changed its name from Interactive Medical Technologies,
Ltd. to Kaire Holdings Incorporated. Kaire’s headquarters are currently in
Fillmore, California. Kaire has three subsidiaries, Effective Health, Inc.,
YesRx.com, Inc. and See Shell Inc, of which only Effective Health Inc. is
operating. Classic Care, Inc., (d/b/a Classic Pharmacy), a subsidiary of
YesRx.com, Inc., was dissolved in February 2003 upon the acquisition of Sespe
Pharmacy.





From 1986
through May of 2000, Kaire sold non-radioactive diagnostic imaging microspheres
and provided quantitative laboratory analysis to customers who used the micro
sphere products in their research studies. Customers included private and
government research facilities, academic centers, and hospitals engaged in the
study regional blood flow under laboratory conditions. We discontinued marketing
these products and services in May 2000.





In
December 1997, Kaire entered into an agreement to acquire 80% of Kaire
International, Inc. ("KII"), a network marketing firm based in Longmont,
Colorado. As part of the proposed acquisition, IMT changed its name to Kaire
Holdings, Incorporated (“Kaire”). Kaire was unable to raise all the capital
needed to complete the acquisition and by December 1998, we had to cancel the
transaction. Any affiliation with Kaire International, Inc. was ended at that
time.





In May of
1999 Kaire incorporated YesRx.com, Inc., in the state of Delaware and began
marketing a range of health oriented herbal consumer products through
Vitaplanet.com, an e-commerce internet site we developed in house. A short time
later we changed the name of Vitaplanet.com with YesRx.com, and upgraded the
online e-commerce drug store to provide specialized pharmacy services,
over-the-counter products, nutrition and personal care products supported by
comprehensive health information to targeted segments of the senior health care
market. The on-line e-commerce drug store business (YesRx.com) was not growing
as expected and remained unprofitable. This business was phased out during
2001.










In June
2000, YesRx.com, Inc. acquired a 4-year-old pharmacy, Classic Care, Inc. (d/b/a
Classic Care Pharmacy), located in Los Angeles, California. Classic Care
Pharmacy provided specialized pharmacy care to residential board and care
facilities in southern California. Through Classic Care Pharmacy, we gained
revenues, increased the total number of patients served and obtained a licensed
distribution center for pharmacy operations. Kaire retained the existing Classic
Care Pharmacy management who were responsible for day to day pharmacy
operations. The acquisition was made with a combination of cash and stock. The
purchase price consisted of (i) cash, (ii) short-term promissory notes, and
(iii) and the issuance of our common stock. In January 2000, we introduced a
product line we labeled as the HIV health advocate program which was designed to
improve medication compliance for HIV patients who were being treated with
complex anti-viral medication therapies. This was done through personal
interaction with each HIV patient. As discussed below, this program was phased
out in January 2003.





In
November 2001, we sought to restructure the schedule of remaining payments due
Classic Care, Inc. under the acquisition agreement due to a significant fall in
the market price of our common stock. As an alternative to restructuring, the
original shareholders of Classic Care, Inc and us agreed to a plan to spin-off
Classic Care, Inc. On January 31, 2002, at the annual shareholder meeting,
shareholders approved the spin-off plan.





In May
2002, we abandoned plans to “spin-off” Classic Care Pharmacy due to a notice
dated April 17, 2002 that we received from State of California Department of
Health Services (“DHS”) informing us that they were suspending Classic Care
Pharmacy’s Medi-cal provider number and withholding 100% of Classic Care
Pharmacy’s Medi-cal payments. The DHS alleged that based on their investigation,
Classic Care Pharmacy had submitted numerous patients’ claims without proper
documentation.





Upon
review of the supporting documentation, Classic Care Pharmacy’s counsel believed
that the facts presented by the DHS were inaccurate and that its position was
unfounded and appealed their decision. However, that appeal was ultimately
rejected.





Given
these circumstances, we had few choices other than accepting the Classic Care
shareholders proposal to return that portion of Classic Care Pharmacy’s business
affected by the DHS action back to the Classic Care shareholders. Kaire
transferred that business, which amounted to approximately 80% of the total
revenue, back to the original Classic Care, Inc. shareholders in exchange for a
release from repaying any outstanding amounts due on promissory notes related to
that acquisition. We retained less than 20% of the total business, which
consisted primarily of the medication sold to HIV patients (Health Advocate HIV
program) which not regulated by the DHS.





Acquisition
of Sespe Pharmacy





In
November 2002, Kaire, through its subsidiary Effective Health, Inc., opened
escrow to purchase certain assets of Sespe Pharmacy, located in the Sespe
medical clinic in Fillmore, California. Escrow closed on January 26, 2003. Sespe
Pharmacy was a small retail pharmacy that dispensed on approximately 75 retail
prescriptions per day.





Effective
Health, Inc., (d/b/a Sespe Pharmacy) serves as our base of pharmacy operations.
Since acquiring Sespe Pharmacy, we have resumed our board and care marketing
efforts which has resulted in a number of new facilities becoming customers of
our specialized pharmacy service programs.





As part
of the acquisition, we entered into an operating lease agreement for the
pharmacy in Fillmore, California which also serves as our corporate
headquarters. At the time of acquisition, the pharmacy facility was
approximately 843 square feet with a monthly payment of $1,170. In May 2004 we
expanded our space to approximately 1,115 square feet, with a monthly payment of
$1,520 and in March 2005 we expanded our space to approximately 1,800 square
feet and currently pay $2,245 a month.










In
January 2003, being unable to rebuild Classic Care Pharmacy, all operations at
Classic Care Pharmacy ceased and Classic Care, Inc was dissolved. Additionally,
the logistical problems created by our move to Fillmore, California, made it
difficult to provide the level of personal attention required to service
individual HIV clients in the Health Advocate HIV program. The combination of a
declining HIV client base due to the logistical problems of provid ing the
level of personal attention required to service each HIV client (i.e.
clients were transferring their business to a more conveniently located
pharmacy) and the little to no gross profit margins provided by servicing those
clients, lead to the decision to phase out the Health Advocate HIV program.





Entremetrix





On March
18, 2003, YesRx.com, Inc. purchased Entremetrix, a California corporation, by
acquiring all of the outstanding capital stock of EntreMetrix, Inc. for a total
purchase price of $2,750,000, consisting of a promissory note of $2,500,00
payable to Richard McKinley, the owner and founder of EntreMetrix plus 1,250,000
(post split) restricted shares of KAIH Common Stock valued at the time at
$250,000. Entremetrix provides financial and administrative support for smaller
medical companies, long term board and care facilities, and pharmacies, to their
administrators, employees, patients, clients and services providers. However,
after almost a year of the Professional Employer Organization business, we felt
that it was in our best interests to develop our pharmacy business and
discontinue our employer services business. Therefore, on February 12, 2004
documents were drafted for the unwinding of the purchase of EntreMetrix which
occurred on Februray25, 2004. The terms called for 100% of the outstanding
shares of EntreMetrix held by Kaire Holdings Incorporated to be exchanged for
the two million five hundred thousand dollars ($2,500,000) note payable to
Richard McKinley, plus any accrued interest; and (ii) the two hundred fifty
million (250,000,000) pre-split (1,250,000 post split) shares of common stock
held by Richard McKinley. There were no outstanding liabilities on either side
of this transaction. The executed documents were delivered on February 25, 2004.
As a result Richard McKinley and EntreMetrix are no longer affiliated with Kaire
Holdings and YesRx.com, Inc.




Reverse
split





On July
10, 2003, Kaire reverse split its common stock at a 200 to one ratio. As of May
31, 2005 there are 900,000,000 shares of common stock authorized with 33,877,252
shares issued and outstanding. There are also $1,451,576 in outstanding notes
that are convertible into approximately 47,855,200 shares of common stock at the
current market price and outstanding warrants exercisable into 8,138,888 shares
of common stock.





Product
Liability Insurance





We carry
no direct product liability insurance, relying instead on the coverage
maintained by our distributors and manufacturing sources from whom we obtains
product. There is no assurance that this insurance will adequately cover any
liability claims brought against us. There also can be no assurance that we will
be able to obtain our own liability insurance (should we seek to do so) on
economically feasible terms. Our failure to maintain our own liability insurance
could materially adversely affect our ability to sell our products in the
future. Although no product liability claims have been brought against us to
date, if there were any such claims brought against us, the cost of defending
against such claims and any damages paid by us in connection with such claims
could have a materially adverse impact upon us, including our financial
position, results of operations and cash flows.





On any
product liability actions sought concerning the quality of the drugs distributed
by Sespe Pharmacy, we would be indemnified by our distributors and manufacturing
resources.













Competition





Retail
and Specialized Pharmacy Services: There is significant competition among the
retail independent and chain drug stores and pharmacies such as Save-on and
Rite-Aid. Many of these retail competitors are larger, better-financed companies
with greater resources. The majority of the larger companies compete for
individual retail customers on the basis of price and convenience. Few offer the
types of specialized programs and services that we do.





We
believe that we can successfully compete against larger better-financed
independent and chain drug stores by delivering high quality products and
services to select market segments, rather than delivering high volume average
service. However, this does preclude the possibility that the larger independent
and chain stores will not introduce their own specialized programs that target
similar market segments.





Patents,
Licenses and Trademarks





Not
Applicable





Royalty
Agreements





Not
Applicable





Government
Regulations





Specialized
Pharmacy Services: All pharmacies, in every state are subject to the regulations
of various federal agencies, including the United States Drug Enforcement
Agency, and by various state agencies, which in our state is the California
State Board of Pharmacy, and Department of Health Services. Presently, we are
compliant with all federal and state regulations related to our
businesses.





Research
and Development Plan





Not
Applicable





Employees





Our
Pharmacy staff includes the manager of pharmacy operations/pharmacist in charge,
a pharmacy technician, a retail sales clerk, a pharmacy sales manager (board
& care facilities), and a billing manager and two delivery
personnel.





There is
one full time employee with Kaire Holdings, Inc.








**ITEM
2. Description of Property**





In
January 2003, we entered into an operating lease agreement for the pharmacy in
Fillmore, California which serves as our corporate headquarters. At the time the
pharmacy facility was approximately 843 square feet with a monthly payment of
$1,170. In May 2004 we expanded our space to approximately 1,115 square feet,
with a monthly payment of $1,520 and in March 2005 we expanded our space to
approximately 1,800 square feet and currently pay $2,245 a month. The lease was
to continue through the original initial lease term of five years. We had
options to renew the lease for two five-year periods and to purchase the
facility at its estimated fair market value at any time during the lease term.
However, Santa Paula Memorial Hospital, the holder of the master lease filed for
chapter 11 Bankruptcy protection and the court rejected including the lease in
bankruptcy. The property owners have approached us with a proposal to takeover
the master lease. However, we have not made a decision concerning the master
lease. We have not signed a new lease.





In June
of 2002, we leased a 7,334-square-foot building located at 8135 Clybourne Ave,
Sun Valley, CA 91352, to serve as our corporate headquarters and storage
facility. The lease is for a period of two years, ending June 2004, with monthly
lease payments of $3,420.00. At our request, the landlord found a new tenant for
this property and we vacated it in the month February 2004.










**ITEM
3. Legal Proceedings**





Breach
of Contract





In 2003,
an individual filed a complaint against us alleging breach of contract and fraud
and related business torts related to certain patents the plaintiff claimed we
transferred to him. We believed that the plaintiff’s claims were without merit.
Although we reached a tentative settlement in this matter, the Plaintiff failed
to execute the settlement and the case was dismissed.





Department
of Health Services - Medi-Cal Action Against Classic Care
Pharmacy





On April
17, 2002 the Department of Health Services (“DHS”) notified the management of
Classic Care Pharmacy that the Medi-Cal Program intended to withhold 100% of
payments and temporarily suspend and deactivate the Classic Care Pharmacy
Medi-Cal provider number.





The
Department of Health Services ("DHS") took this action after having reviewed the
prescriptions on record at Classic Care Pharmacy. The DHS stated that they had
reviewed thirty-two prescriptions, and that two of the ten prescribing
physicians had denied treating the patients and writing the prescriptions. The
DHS cited Classic Care Pharmacy for violations of CCR, Title 22, Sec.51476.1,
(a) and 51476.1(a)(2), which states that written prescriptions must contain the
name of the prescribing physician and their provider number. Based on its
findings the DHS and the Medical Program concluded that Classic Care Pharmacy
might have intentionally committed fraud.





Classic
Care management retained outside counsel shortly after receiving the DHS notice
to review the Department of Health Services findings. After reviewing the
supporting DHS material, outside counsel informed Classic Care management that
it believed the facts presented by the DHS were inaccurate and that its position
was unfounded. Classic Care management and its principle shareholders obtained
written affidavits from most of the physicians whose prescriptions had been
reviewed by the DHS confirming that they had treated the patients and did
prescribe the medications.





On April
29, 2002, outside counsel contacted the DHS to discuss its findings and present
the documentation supporting their position. DHS informed outside counsel that
they would have to follow the standard appeal process, which normally requires
two or more months to complete. Classic Care Pharmacy instructed outside counsel
to seek an ex parte temporary restraining order against the DHS for their
failure to show cause regarding their actions. On May 8, 2002, in the Superior
Court for the state of California, the Court granted Classic Care’s ex parte
request issuing a preliminary injunction against the DHS and reinstated Classic
Care Pharmacy’s medical provider number. The Court set May 24, 2002 as the date
for the DHS to show cause. On May 24, 2002, the DHS was still not prepared to
show cause. The court granted a 30-day extension.





Classic
Care, Inc. and Classic Care Pharmacy administrative appeal failed. Once the
appeal took place the Superior court could no longer uphold our lack for due
process claim and the DHS canceled Classic Care Pharmacy’s medical provider
number. The justice department has not taken any further action against Classic
Care Pharmacy. Subsequently we dissolved Classic Care, Inc. and Classic Care
Pharmacy.





Kaire
believes that it does not have any liability in this matter and has not provided
any reserve for this matter. The basis for this belief is the following: 1) the
California Department of Health Services (“DHS”) claim is directed to Classic
Care Pharmacy which was owned by Classic Care, Inc. 2) Classic Care Inc. is a
separate legal entity and was operated by the prior owners, whom Kaire believes
perpetrated the actions leading to the alleged claims, 3) Kaire was not involved
nor was Kaire aware of the alleged overpayment to Classic Care Inc., 4) the
alleged claim includes a period of time before Kaire was involved with Classic
Care, Inc., thus precluding Kaire of any claim in that time period and 5) Kaire
did not benefit in any way from the alleged overpayment.














H.D.
Smith Wholesale Drug Company - Action for breach of contact and other various
causes of action





On April
2, 2003, H.D. Smith filed a complaint against Classic Care, Inc., Kaire
Holdings, Inc., Sarit Rubenstein, Steven Oscherowitz and Larisa Vernik for
various causes of action relating amounts owed for certain drugs that were
delivered to Classic Care. H.D. Barnes is seeking $430,205 plus interest. On
December 30, 2004 a settlement was reached where Kaire is obligated to pay the
plaintiff $50,000. Kaire’s payment obligation will mature upon court approval of
the settlement, with $10,000 due immediately at that time and the balance paid
based on 12 monthly installments of $3,077.06 (which includes interest of
7.50%). We expect to obtain court approval within approximately sixty days of
the time of this filing.





McKesson
Medical - Surgical Inc. v. Effective Health





On
January 20, 2005, McKesson Medical-Surgical, Inc. (“Plaintiff”) filed a
complaint against Effective Health, Inc., a subsidiary of Kaire, for failure to
pay the principal sum of $17,466.65 for goods and/or services. We have expressly
denied any liability although our attorney has not yet undertaken a full
analysis of the Plaintiff’s claims at this early stage of the
litigation.





Except as
otherwise specifically indicated above, we believe that we do not have any
material liability for any lawsuits, settlements, judgments, or fees of defense
counsel which have not been paid or accrued as of December 31, 2004.





**ITEM
4.**  **Submission
of Matters to a Vote of Securities Holders**





On June
20, 2003, a definitive 14C informational proxy was filed with the Securities and
Exchange Commission in lieu of a special meeting of the shareholders, notice was
hereby given that the following actions will be taken pursuant to the written
consent of a majority of our shareholders. The following actions became
effective on July 10, 2003:





1.
amendment of our certificate of incorporation to provide for a stock combination
(reverse split) of the


Common
Stock in an exchange ratio to be approved by the Board, ranging from one newly
issued share for each two outstanding shares of Common Stock to one newly issued
share for each two hundred outstanding shares of Common Stock.





2
    the
      ratification of the appointment of Pohl, McNabola & Berg, LLP as our
      independent accountants for the


current
fiscal year.



















**PART
II**





**ITEM
5.**  **Market
for Common Equity and Related Shareholder Matters**





Our
common stock is quoted on the Over-the Counter Bulletin Board, also called the
OTCBB, under the trading symbol “KAIH”. The following table set forth the
quarterly high and low bid prices per share for our common stock. The bid prices
reflect inter-dealer prices, without retail markup, markdown, or commission and
may not represent actual transactions.








******High**
    **Low**Year
      ended December 31, 2002First
      quarter
    $
      0.01
    $
      0.00Second
      quarter
    0.01
    0.00Third
      quarter
    0.00
    0.00Fourth
      quarter
    0.00
    0.00Year
      ended December 31, 2003 *First quarter
      *
    $ 0.56
    $ 0.16Second
      quarter*
    0.80
    0.10Third
      quarter *
    0.28
    0.06Fourth
      quarter *
    0.10
    0.04Year
      ended December 31, 2004First
      quarter
    $0.32
    $0.05Second
      quarter
    0.19
    0.10Third
      quarter
    0.15
    0.05Fouth
      quarter
    0.08
    0.04Year
      ended December 31, 2005First
      quarter
    $0.07
    $0.04


*
adjusted for the 200 to 1 reverse split

As of
April 30, 2005, there were approximately 820 registered shareholders of KAIH’s
Common Stock.

Dividends

To date,
the Company has not declared or paid dividends on its Common Stock.

Transfer
Agent and Registrar

KAIH’s
transfer agent is Jersey Transfer and Trust Company, 201 Bloomfield Avenue,
Verona, NJ 07044.

Securities
authorized for issuance under equity compensation plans.

N/A

8

Recent
Sales of Unregistered Securities

KAIH made
the following sales of stock without registration using the exceptions available
under the Securities Act of 1933, as amended, including unregistered sales made
pursuant to Section 4(2) of the Securities Act of 1933, as follows:

On
September 20, 2002, Matthew Marcus was issued 30,000,000 (pre-split) restricted
shares for consulting services. The value of the shares was $60,000. The
issuance of these securities was in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933 as a sale of securities not involving
a public offering. We made a determination that the creditors were sophisticated
investors with enough knowledge and experience in business to evaluate the risks
and merits of the investment.

On May
21, 2003, was issued 250,000,000 (pre-split) Shares relating to the acquisition
of Entremetrix to Richard R. McKinley. The value of the shares was approximately
$250,000. The issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of securities
not involving a public offering. We made a determination that the creditors were
sophisticated investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.

On
October 17, 2003 the following restricted shares were issued:

On
October 17, 2003, George Lefevre was issued 375,000 restricted shares for
consulting services. The value of the shares was $22,500. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.

On
October 17, 2003, Scott Absher was issued 375,000 restricted shares for
consulting services. The value of the shares was $22,500. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.

On
October 17, 2003, Steven Westlund was issued 375,000 restricted shares for
expenses owed. The value of the shares was $22,500. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.

On
October 17, 2003, Owen Naccarato was issued 375,000 restricted shares for legal
services. The value of the shares was $22,500. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.

On
October 17, 2003, Joseph Maleki was issued 350,000 restricted shares for legal
services. The value of the shares was $21,000. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.

On
October 17, 2003, Randy Jones was issued 250,000 restricted shares for
consulting services. The value of the shares was $15,000. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.

On
October 17, 2003, Jay Isco was issued 200,000 restricted shares for consulting
services. The value of the shares was $12,000. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.

9

On
December 27, 2003, KAIH issued $370,000 in Convertible Debentures, 8% annual
interest rate, pursuant to a Securities Purchase Agreement (the “Agreement”).
The convertible debentures can be converted into shares
of common
stock with the conversion price per share being the lesser of (i) $.06 (“Maximum
Base Price”) or
(ii)
seventy percent (70%) of the average of the three lowest closing bid prices for
the thirty (30) trading days
prior to
but not including the conversion date. The conversion price described above
shall not be less than
one-half
of the Maximum Base Price unless the closing price of the common stock is less
than one-half the Maximum Base Price for any ten (10) consecutive trading days.
The notes were issued to the following: Alpha Capital Aktiengesellschaf, an
$111,000 secured convertible debenture, Gamma Opportunity Capital Partners, LP,
a $100,000 secured convertible debenture, Longview Fund, L.P. a $120,000 secured
convertible debenture and Standard Resources Limited, a $150,000 in secured
convertible debenture. The underlying shares to these securities were registered
on February 17, 2004, on Form SB2, File #333-112861

During
the Quarter ending March 31, 2004, the issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the Securities Act of 1933
as a sale of securities not involving a public offering. We made a determination
that the creditors were sophisticated investors with enough knowledge and
experience in business to evaluate the risks and merits of the investment, as
follows:

1.
4,812,523 shares of common stock were issued to Alpha Capital Aktiengesellschaft
pursuant to Rule 144k.
2.
3,058,035 shares of common stock were issued to Gamma Opportunity Capital
Partner LP pursuant to Rule 144k.
3.
4,436,676 shares of common stock were issued to Longview Fund LP pursuant to
Rule 144k.
4.
2,678,570 shares of common stock were issued to Churchill Investments, Inc.
pursuant to Rule 144k.

On May 3,
2004, Kaire issued $650,000 in Convertible Debentures, 8% annual interest rate,
pursuant to a Securities Purchase Agreement (the “Agreement”). The convertible
debentures can be converted into shares of common stock with the conversion
price being the lesser of $0.09 per share, or 85% of the average of the lowest
three closing bid prices of the common stock during the 15 trading days
preceding the conversion date.

The above
notes are as follows: Alpha Capital Aktiengesellschaft was issued a $350,000 in
secured convertible debenture, Longview Fund, L.P. was issued a $100,000 secured
convertible debenture, and Gamma Opportunity Capital Partners, LP was issued a
$200,000 secured convertible debenture. In connection with the convertible
notes, the following common stock issuable upon the exercise of warrants at
$0.17: 1,944,444 shares of common stock issuable to Alpha Capital
Aktiengesellschaft, 555,556 shares of common stock issuable to Longview Fund LP,
1,111,111 shares of common stock issuable to Gamma Opportunity Capital Partners,
LP and 833.333 to Bi-Coastal Consulting Corporation.

The
holders of the 8% convertible debentures may not convert its securities into
shares of Kaire’s common stock if after the conversion such holder would
beneficially own over 9.9% of the outstanding shares of Kaire’s common stock.
The holder may waive this percent ownership restriction upon not less than 61
days notice to Kaire. Since the number of shares of Kaire’s common stock
issuable upon conversion of the debentures will change based upon fluctuations
of the market price of Kaire’s common stock prior to a conversion, the actual
number of shares of Kaire’s common stock that will be issued under the
debentures owned by the holders is based on a reasonable good faith estimate of
the maximum amount needed.

On
September 22, 2004, Kaire Holdings, Inc., issued a promissory to the Longview
Fund LP, a private investment fund, the principal sum of Sixty Thousand Dollars
with interest of Six Thousand Dollars, which is payable in three equal payments
within three months with the first payment beginning within thirty days of the
above referenced date. In the event of partial payments, each payment shall be
credited first to accrued interest and then to principal, and thereafter
interest shall cease to accrue upon the principal so credited. The balance as of
April 30, 2005 is $40,725.

10

In March
29, 2005, Kaire issued a $125,000, 8% interest per annum, two year convertible
note to the Longview Fund LP. The Conversion Price per share shall be the lesser
of (i) $.04 or (ii) eighty-five (85%) of the average of the closing bid prices
for the fifteen (15) trading days prior to but not including the conversion date
for the common stock. In addition Longview was issued a class A warrant for the
purchase of 694,444 shares of the common stock at a per share purchase price of
$0.042, and a class B warrant for the purchase of 3,000,000 shares of the common
stock at a per share purchase price of $0.04

11





**ITEM
6. Management’s Discussion and Analysis of Financial Condition and Results of
Operations**

Critical
Accounting Policies

The
Company recognizes revenue for pharmacy operations at the time the product is
shipped to the customer or services are rendered. Outbound shipping and handling
charges are included in net sales.

Professional
employment services revenue is recognized at the payroll date of the customer or
as services is rendered. The payroll fee is due prior to the payroll date, but
is not considered revenue until the date of the payroll. The company reports
gross income as the total cost of the invoice for the staffing services rendered
including gross payroll, payroll taxes, workers compensation, administrative
fees and delivery fees. Amounts received prior to the payroll payment date are
classified as deferred revenue.

Plan
of Operation

General

Our
general operating plan focuses on delivering specialized programs and services
targeted areas within the senior and chronic health care market. We believe this
approach will help differentiate us from our competitors and establish us as a
senior and chronic health care specialist. We also believe that the size of the
aging baby boomer generation will create the need for numerous additional
programs and services required to properly care for this group. Kaire will
continue to position itself to take advantage of future market opportunities by
continuing to develop and market products, programs and services that help
patients comply with increasingly complex medication therapies including
programs that help educate patients about their chronic conditions as well as
programs that increase pharmacy operating efficiencies including the processing
of state and private insurance claims.

Short
Term Goals

Kaire’s
main short term goal is to increase sales revenue and achieve profitability on
an operational cash flow basis. We believe that goal will be achieved by second
quarter 2005. Once achieved, the Company will be able to reduce or eliminate the
need to raise additional working capital to sustain operations. Achieving this
goal would include accomplishing the following:

·Increase
the number of retail and long term care patients served by focusing more of our
resources on targeted sales and marketing programs.
·Develop
revenue channels with higher gross profit margins such as medical and
incontinence supplies, durable medical equipment such as wheel chairs, beds and
walkers, and equipment rentals.
·Enhancing
operational efficiencies during this expansion mode such as by installing
procedures for routine functions and reassign employee functions that fit their
strengths..

Long
Term Goals

Our long
term goals would be to expand on our short term goals, i.e. expand our service
coverage area to increase sales and to introduce service programs that would be
custom tailored to meet the needs of our clients as those needs arise.

Our work
force is expected to stay flat or increase at a rate equal to actual increases
of our business operations.

12

Concerning
working capital, historically the Company revenues have been insufficient to
cover operations. For the first four month period ending April 30, 2005, Kaire
has used approximately $89,000 a month in negative cash flow. Consequently, the
Company has relied in part on private placements of common stock securities,
bank debt, loans from private investors and the exercise of common stock
warrants to meet operational needs. However, with revenue expected to grow
steadily in the third and fourth quarter of 2005, we believe that over the next
twelve months there will be sufficient working capital generated from sales to
cover operational needs. This evaluation is based on a result of an increased
sales effort by Effective Health which is concentrating of facilities within a
50 miles radius of the pharmacy. However, some additional funding will be needed
to cover operation expenses over the next several months. In the event that we
are unable to obtain additional funding over the next several months, we will
need to reduce operations to a point where cash outflow will not exceed cash
inflow. Currently Kaire does not have any excess cash.

In the
event that revenue growth does not meet expectations, the Company may again need
to seek working capital from its normal sources. Historically, the Company has
been successful in its efforts to secure working capital from private placements
of common stock securities, bank debt, loans from private investors and the
exercise of warrants for common stock. However, there can be no assurances that
private or other capital will continue to be available, to meet the Company’s
cash needs, or that a sufficient amount of the Company’s common stock or other
securities can or will be sold or that any common stock purchase
options/warrants will be exercised to fund the operating needs of the
Company

**Results
of Operations**

Year
Ended December 31, 2004 Compared to Year Ended December 31, 2003

Net
revenue from continuing operations for the year ended December 31, 2004 was
$2,350,847 as compared to $1,256,806 for the same period in 2003, or an increase
of $1,084,041 (87.0%). The increase in net revenues was attributable to an
increase in the number of long term care facilities we are serving.

Gross
profit for the year ended December 31, 2004 was $364,567 as compared to $371,888
for the same period in 2003, or a decrease of $7,321 (2.0%). The gross profit
percentage of 15.5% for the period ended December 31, 2004 decreased from 29.6%
for the same period in the prior year. The decrease in gross profit was
attributable to turnover and inexperience in our billing department, resulting
in lost revenue. This situation has been addressed during the first quarter of
2005 and we should see a return to higher gross margins.

Operating
expenses for the period ending December 31, 2004 were $1,717,081 compared to
$1,417,055 for the same period in 2003, or an increase of $300,026 (21.2%). The
increase in operating expenses was mostly attributable the following: 1)
salaries decreased $3,790, 2) general administration increased $ 327,674, 3)
depreciation expense decreased $9,696, 4) selling expenses increased $28,605 and
5) rent expense decreased $16,398. The $315,421 (35.9%) increase in general
administration consists primarily of increases in 1) accounting of $57,954 2)
contract and outside services of $73,343 ( represents temporary pharmacy support
- pharmacist and billers), 3) facility marketing of $27,968, 4) Automobile
expense of $31,310, 5) consulting fees of $110,414 (consists of sales and
facility support help), and 6) write off of deposits of $45,338, offset by
decreases in 1) Travel and Entertainment of $18,444, 2) insurances of $4,758, 3)
license fees of $1,312, 4) office expenses of $4,170 and 5) miscellaneous items
of $2,316. Rent expense decreased due to the closing of the Clyborn facility.
Selling and shipping expenses increased due to the increase in
sales.

Interest
expense was $389,991 for the year ended December 31, 2004 as compared to $83,146
for the same period in 2003, or an increase of $306,843 (369.0%). The interest
expense increase in 2005 was primarily a result of an increase in the
amortization of the amount attributable to the beneficial conversion feature and
warrants associated with the convertible debt of $257,288, plus $21,667
amortization of the issuance costs associated with funding received in 2004,
plus the increase interest related to the convertible notes of $27,890.

The
forgiveness of debt of $137,149 represents the write off of old notes over five
years old plus all associated accumulated interest.

The gain
on settlement of litigation of $115, 243 was a result of a settlement being
reached on the Smith Barnes law suit against Kaire’s discontinued subsidiary
Classic Care, Inc.

13

No
deferred income tax benefit was recognized for Federal and State income tax
since we have incurred significant net operating losses. We recorded a valuation
allowance against our deferred tax assets primarily due the substantial doubt
regarding recoverability of a tax benefit resulting from net operating loss
carry forwards.

The net
loss on continuing operations increased $398,479 (36.1%) to $1,493,053 for the
year ending December 31, 2004 from $(1,104,098) for the year ending December 31,
2003.

The net
loss after discontinued operation was $842,968, a decrease in loss of $442,879
(34.4%) from the prior year loss of $(1,285,847). The decrease in loss was
mainly attributable to the gain from the settlement of the lawsuit associated
with Classic Care, Inc. of $438,048 plus the gain on discontinuation of
Entremetrix of $276,848.

**Liquidity
and Capital Losses**

Net
non-cash items affecting operating activities for the period ending December 31,
2004 amounted to $775,605, which mainly consisted of the net loss for the year
of $842,968 adjusted by the following: 1) the gain on the sale of Entremetrix of
$276,848, 2) the gain on extinguishment of notes payable and related interest of
$137,149, 3)income from discontinued operations - Classic Care of $438,048, 4)
gain on legal settlement of $115,243, and 5) other items totaling $10,271,
offset by the following 1) depreciation and amortization of $28,340, 2) the loss
from operations of discontinued operations - Entremetrix of $55,287, 3) common
stock issued for professional services and compensation of $658,514, 4)
amortization of warrant and beneficial conversion feature of $281,114, and 5)
amortization of deferred financing costs of $21,667.

Net cash
used by operating activities for the period ending December 31, 2004 amounted to
$(559,634), consisting of: 1) the increase of accounts receivable of $198,760,
2) the increase in inventories of $64,711, and 3) the decrease in income and
sales tax payable of $13,853, offset by the following****1) the
increase in bank overdraft of $19,931, 2) an increase in accrued interest on
convertible notes of $51,483, and 3) an increase in accounts payable and accrued
expenses of $196,191.

Net cash
used in investing activities for the year ended December 31, 2004was $14,712,
attributable to the Company’s purchase of a delivery vehicle.

Net cash
generated by (used in) financing activities was $715,051 for the year ended
December 31, 2004. Notes payable to shareholders increased by $9,900, with no
payments made against such notes. Notes payable to related parties increased by
$9,525, but decreased by cash payments of $1,990. Other third-party notes
decreased due to total payments of $79,384, offset by receipts of a new loan of
$60,000. The Company received $650,000 in new funding during the year, plus the
Company received $132,000 as the result of the exercise of
warrants.
On
December 31, 2004 the Company had total assets of $485,246 compared to $395,176
on December 31, 2003, an increase of $103,698 (33.3%). The Company had a total
stockholder's (deficit) equity of $(1,425,955) on December 31, 2004, compared to
a stockholders deficit of $(2,378,716) on December 31, 2003, an increase of
$952,761 (22.8%). As of December 31, 2004 the Company's working capital position
increased by $1,256,695 from a working capital deficit of $2,366,555 at December
31, 2003 to a working capital deficit of $1,109,860 at December 31, 2004. This
result was attributed primarily to decreases in 1)accounts payable and accrued
expenses of $393,152 (46.6%), 2) liabilities of discontinued operations of
$438,048 (75.1%), 3) income Taxes payable of $13,853 (95.5%), 4) loan payable of
$19,384 (28.3%), 5) accrued interest on convertible debt of $23,517 (10.2%), 6)
the current portion of convertible notes of $302,409, plus, increases in 7)
accounts receivable of $98,760 (297.7%) and 8) inventory of $64,711 (75.9%),
offset by 100% decreases in cash of ($84,985), deposits ($45,549) and nets
assets - Entremetrix ($29,839), plus increases in (11) bank overdraft of
$19,931, (12) notes payable related parties of $7,535 (131.1%), and 12) advances
form shareholders of $9,900 (15.5%).

Over the
next twelve months, management is of the opinion that sufficient working capital
will be obtained from operations and external financing to meet our operating
needs. The following is a discussion of future cash requirements.

14

The fixed
and ongoing expenses of Kaire are as follows:

Future
annual maturities of convertible notes payable (including related accrued
interest) at December 31, 2004 were as follows:

Year
      EndedDecember
      31,
    
    Amount2005
    Convertible
      Notes due on demand
    $
      775,4622006
    Convertible
      Notes Due May 2006
    385,880$
      1,161,342


Accounts Payable and Accrued Liabilities

Accounts
payable and accrued liabilities at December 31, 2004 consisted of the
following:

2004Accounts
      payable
    $
      441,661Advances
      from shareholders
    73,607Notes
      Payable - Short Term
    62,281$
      577,549

Future
annual minimum lease payments under operating leases with remaining lease terms
of greater than one year are summarized as follows:

Year
      Ended**December
      31,**2005
    
    $
      9,240$
      9,240


Fixed
recurring Selling General and Administrative expenses would be as
follows:

Estimated
2005
Monthly
Average
Salaries
and
benefits:                                                               $38,000
Rent:           2,255 (increased space in 2005)
Contract
Labor:                                                                         
 15,289
Auto:                                                                                             
1,250
Telephone
and
Communications:                                                                        
2,250
Bank
Charger:                                                                                 
500
Total
Monthly                                                                        
______
Fixed
SG&A
costs:                                                                  $59,544

Estimated
future cash requirements

Kaire’s
estimate of net cash requirements for overhead for the next twelve months
subsequent to April 2005, is approximately $89,877 (includes the above fixed
cost estimate of $59,444) a month for a twelve total of $1,078,524. The Estimate
of net cash inflow from operations for that time period is estimated to be
approximately $1,674,900.

15

Kaire has
generally financed operations through the sale of its common stock. In order to
sustain operations in the near term, it is anticipated that we will need an
additional small infusion of funds of approximately $300,000 from outside
sources. In March 2005, we received some of the needed funds of $125,000 in
funds pursuant to a subscription agreement. If our projections over the next
twelve months fall short of expectations, we will have to seek additional equity
funding. If we are unable to gain access to such funding, Kaire will be forced
to curtail operations until such funding is obtained.

Subsequent
Events

Issuance
of Common Stock for Services

On
February 3, 2004 the Company issued 3,000,000 shares of common stock to
employees and consultants, with a market value of $120,000, for consulting and
legal services provided to the Company.

Issuance
of Convertible Security

In March
29, 2005, Kaire issued a $125,000, 8% interest per annum, two year convertible
note to the Longview Fund LP. The Conversion Price per share shall be the lesser
of (i) $.04 or (ii) eighty-five (85%) of the average of the closing bid prices
for the fifteen (15) trading days prior to but not including the conversion date
for the common stock. In addition Longview was issued a class A warrant for the
purchase of 694,444 shares of the common stock at a per share purchase price of
$0.042, and a class B warrant for the purchase of 3,000,000 shares of the common
stock at a per share purchase price of $0.04

Settlement

On
December 30, 2004 a settlement was reached where Kaire is obligated to pay the
plaintiff $50,000. Kaire’s payment obligation will mature upon court approval of
the settlement, with $10,000 due immediately at that time and the balance paid
based on 12 monthly installments of $3,077.06 (which includes interest of
7.50%). The settlement was executed by the parties at the end of Aril 2005.
Kaire expects to obtain court approval within approximately sixty days of the
time of this filing.

Employment
Agreement

On April
5, 2005, the Company agreed to a new three year agreement with Mr. Westlund. The
agreement calls for a monthly salary of $8,333.33 per month, with annual
increases equaling 15% of the base salary. In addition, he will receive a 5 year
option to purchase 12 million shares of the Company’s common stock, at an option
price of $0.05 per share.


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
$836,848 and $1,285,847 for the years ended December 31, 2004 and 2003,
respectively. The Company also had a net working deficit of $1,103,739 and
$2,283,142 for the years ended December 31, 2004 and 2003 respectively.
Additionally, the Company must raise additional capital to meet its working
capital needs. If the Company is unable to raise sufficient capital to fund its
operations, it might be required to curtail or discontinue its pharmacy
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
raised an additional $650,000 in debt financing in May 2004 and $125,000 in
March 2005 and issued a promissory note for $60,000 in September 2004 and the
Company has previously relied on equity financing sources and debt offerings to
fund operations. The Company's reliance on equity and debt financing will most
likely continue in the short term.

16

**ITEM
7.**Financial
Statements

The
report of independent auditors and financial statements are set forth in this
report beginning on Page F-1.

**ITEM
8.**Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure

None

**ITEM
8A.**Controls
and Procedures.

(a)       
Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period ended December 31, 2004, (the
“Evaluation Date”). Based on such evaluation, such officers have concluded that,
as of the Evaluation Date, our disclosure controls and procedures are effective
in alerting them on a timely basis to material information relating to our
Company (including our consolidated subsidiaries) required to be included in our
reports filed or submitted under the Exchange Act except for the limitations
discussed below.

(b)        Changes in Internal Controls over
Financial Reporting. During the last fiscal quarter (fourth quarter) of the most
recent fiscal year, there have not been any significant changes in our internal
controls over financial reporting or in other factors that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

Limitations
on the Effectiveness of Internal Controls

Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. We have had
internal control issues in billing which affects our ability to manage control
in several areas such as accounts receivable and inventory. This issue has been
a result of employee turnover at both the pharmacist level and the biller level.
Though we feel that we have made significant progress in finding a stable staff,
there is no guarantee that an employee may not leave at any time. In addition,
we have an interim CFO who is an outside consultant. We though that this was an
adequate solution at one time, however with the increased reporting requirements
mandated, our CFO has not been as available as he has been in the past, which
has put an additional burden on our internal controls, especially in regards to
reporting. Finally, we have only one officer who is also the sole member of the
board of directors. Any control put in place may be circumvented by this
individual. These matters will be addressed to the best of our ability in the
future.

**Item
8B.****Other
Information.**

None

17
--

**PART
III**

**ITEM
9.**Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act

The
Company’s current officers and directors consist of the following
persons:

**Name**
    **Age**
    **Office**
    **Since**Steven
      R. Westlund
    58
    Chairman
      and CEO
    1995



Steven
Westlund has been the Chief Executive Officer and a director of Kaire since May
1995 and was elected Chairman of the Board in December 1995. Mr. Westlund was
Chairman of the Board and Chief Executive Officer of Vitafort International
Corporation from May 1993 through May 1995. Vitafort manufactured and sold fat
free foods. From January 1991 to May 1993, Mr. Westlund was Chief Executive
Officer of Lorenz/Germaine Incorporated and concurrently from January 1991 to
June 1992 he acted as Chairman and Chief Executive Officer of Auto Giant. Mr.
Westlund specializes in corporate restructuring and the development and
marketing of specialized products and services.

Directors
receive no remuneration at this time. All Kaire Directors are entitled to
reimbursement of funds advanced to pay expenses in connection with our Company's
business. Our Company has not established specific committees within the Board
of Directors.

Compliance
with Section 16(a) of the Securities Exchange Act of 1934

Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
and executive officers, and persons who own more than 10% of a registered class
of the Company’s equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.

To the
Company’s knowledge, based solely on its review of the copies of such reports
furnished to the company and written representations that no other reports were
required during the fiscal year ended December 31, 2004, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with the exception of its sole officer and
director, Steve Westlund who sold 425,000 shares and our acting CFO, Randal
Jones, who sold 80,000 shares during the year ending December 31, 2004. We
expect to make such filings shortly

Code
of Ethics for the Chief Executive Officer and the Principal Financial
Officer

On
September 7, 2004, the sole Board of Directors of the Company adopted the Code
of Ethics for Chief Executive Officer and the Principal Financial Officer, which
is included in Item 13 as an exhibit.


**ITEM
10.**Executive
Compensation

The
following table sets forth certain summary information regarding compensation
paid by the Company for services rendered during the fiscal years ended December
31, 2004, 2003 and 2002, respectively, to the Company’s sole officer, Steve
Westlund during such periods.


18




**Summary
Compensation Table**

Executive
Compensation:
Payouts
    Annual
      Compensation
    Long
      Term Compensation Awards(a)
    (b)
    (c)
    (d)
    (e)
    (f)
    (g)
    (h)
    (i)Name
      and Principal Position
    Year
    Salary
    Bonus
    Other
      Annual Compensation ($)
    Restricted
      Stock Awards ($)
    Securities
      Underlying Options/SAR (#)
    LTIP
      Payouts ($)
    All
      Other Compensation ($)Steve
      Westlund CEO
    2004
    100K
    
    
    
    02003
    100K
    
    
    
    29,8332002
    100K
    
    
    
    0



Options/SAR
Grants in the Last Fiscal Year

Name
    Number
      of Securities Underlying Options/SARS Granted
    %
      of Total Options/SARS Granted to Employees in Fiscal Year
    Exercise
      or Base Price
    Expiration
      DateSteven
      R. Westlund
    0

Employment
Agreements - need to update

On April
1, 2000, Mr. Westlund signed a three-year employment agreement. The contract
calls for Mr. Westlund to be paid a base salary of $8,333 per month for the
first year of the term. Mr. Westlund’s base salary was to increase 15% per year
for each of the second and third years per this agreement. The current agreement
has been extended for one year and will continue on a year to year basis, unless
modified by either party.

On
October 17, 2003, Mr. Westlund was issued 375,000 shares of the Company’s common
stock in lieu of $22,500 of the total amount due to him under the above
compensation agreement. The Company has accrued amounts due to Mr. Westlund of
$317,980 as of December 31, 2003.

During
2004 Mr. Westlund received 2,000,000 shares of the Company’s common stock in
lieu of the compensation that was due and accrued to him under the above
compensation agreement. The Company has $99,700 of accrued compensation due to
Mr. Westlund as of December 31, 2004.

Subsequent
Event

Effective
April 1, 2005, Kaire agreed to a new three year agreement with Mr. Westlund. The
agreement calls for a monthly salary of $8,333.33 per month, with annual
increases equaling 15% of the base salary. In addition, he will receive a 5 year
option to purchase 12 million shares of the Company’s common stock, at an option
price of $0.05 per share.

19

Mr.
Westlund 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.

Compensation
of Directors:

Directors
receive no remuneration for their services as directors at this time.
The
Company offers health insurance to all its employees. The Company has adopted no
retirement, pension, profit sharing or other similar programs.

**ITEM
11.**Security
Ownership of Certain Beneficial Owners and Management - Need to
update

The
following table sets forth certain information known to the Company with respect
to the beneficial ownership of the Company’s common stock as of April 30, 2005
by (i) each person who is known by the Company to own beneficially more than 5%
of the Company's common stock and (ii) KAIH's sole director and executive
officer, and (iii) all officers and directors of KAIH as a group. Except as
otherwise listed below, the address of each person is c/o Kaire Holdings
Incorporated, 5520 Sespe Avenue, Suite D, Fillmore CA 93015.


Name
      and Address
      Of
      Beneficial Owner
      Owned
      (1)
    Number
      of Shares
      beneficially
      owned
    Percent
      of
      class
      (2)Steve
      Westlund
      552
      Sespe Avenue, Suite D
      Fillmore,
      CA 93015
    1,664,000
    4.9
      %ALPHA
      Capital Aktiengesellschaft (3)
      Pradafant
      9490
      Furstentums
      Vaduz,
      Liechtenstein
    18,781,944
      (6)
    36
      %Gamma
      Opportunity Capital Partners, LP (4)
      British
      Colonial Centre of Commerce
      One
      Bay Street, Suite 401
      Nassau
      (NP), The Bahamas
    16,899,078(7)
    35
      %Longview
      Fund, L.P. (4)
      1325
      Howard Avenue, #422
      Burlingame,
      CA 94010
    20,010,399(8)
    37
      %Officers
      and Directors as a group
    1,664,000
    4.9
      %


(1)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of April 30, 2005 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person. Except as pursuant
to applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned.

20

(2)
Percentage based on 33,877,252 shares of common stock outstanding as of April
30, 2005, plus shares underlying each shareholders convertible note and
warrants.

(3)Alpha
Capital Aktiengesellschaft: In accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, Konard Ackerman may be deemed the control person of the
shares owned by such entity. ALPHA Capital AG is a private investment fund that
is owned by all its investors and managed by Mr. Ackerman.

(4) Gamma
Opportunity Capital Partners, LP: In accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, Gamma Capital Advisors, Ltd., an Anguilla,
British West Indies company, is the general partner to the stockholder Gamma
Opportunity Capital Partners, LP, a Cayman Islands registered limited
partnership, with the power to vote and dispose of the common shares being
registered on behalf of the stockholder. As such, Gamma Capital Advisors, Ltd.
may be deemed to be the beneficial owner of said shares. Christopher Rossman and
Jonathan P. Knight, PhD. are the Directors of Gamma Capital Advisors, Ltd., each
possessing the power to act on its behalf. Gamma Capital Advisors, Ltd.,
Christopher Rossman and Jonathan P. Knight, PhD. each disclaim beneficial
ownership of the shares of common stock being registered hereto

(5)
Longview Fund, LP is a private investment fund that is in the business of
investing publicly-traded securities for their own accounts and is structured as
a limited liability company whose members are the investors in the fund. The
General Partner of the fund is Viking Asset Management, LLC,
a Californialimited
liability company which manages the operations of the fund. Peter T.
Benz is the managing member of Viking Asset Management, LLC. As the
control person of the shares owned by Longview Fund, LP, Peter T. Benz may
be viewed as the beneficial owner of such shares pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934.

(6)
Concerning Alpha Capital Aktiengesellschaft: Assuming $505,125 of funding
Convertible Debentures converted at $0.03 (market price) plus 1,944,444
warrants.

(7)
Concerning Gamma Opportunity Capital Partners, LP: Assuming $473,639 of
Convertible Debentures converted at $0.03 plus ----------------------1,111,111
warrants.

(8)
Concerning Longview Fund, LP: Assuming $472,812 of Convertible Debentures
converted at $0.03 plus 4,249,999 warrants.


**ITEM
12.**Certain
Relationships and Related Transaction

Source
One: Kaire out sources its payroll and benefits through Source One, which is a
subsidiary of Dalrada Financial Corporation. Kaire’s CFO, Randy Jones, is also
the CFO for Dalrada Financial Corporation. The figure for payroll, included
taxes and insurance that went through Dalrada in the year 2004 was
$189,181.85.

**ITEM
13.**Exhibits,
List and Reports in Form 8-K


(a)
    Exhibits14.1
    Code
      of Ethics31.1
    Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a)( Section 302 of
      the Sarbanes-Oxley Act of 2002)31.2
    Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a) ( Section 302 of
      the Sarbanes-Oxley Act of 2002)32.1
    Certification
      of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350 (Section 906
      of the Sarbanes-Oxley Act of 2002)32.2
    Certification
      of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350 (Section 906
      of the Sarbanes-Oxley Act of 2002)


21


(b)
    Reports
      on Form 8-KFebruary
      25, 2004
    Items
      2 and 7:reporting
      the sale of the Company’s EntreMetrix subsidiary, which it acquired in
      March 2003, back to the management of EntreMetrix. Under the terms of the
      transaction, the Company will return the EntreMetrix shares in exchange
      for the original $2.5 million promissory note payable to EntreMetrix and
      the shares issued by the Company.May
      23, 2003
    Item
      7: EntreMetrix Audited FinancialsMarch
      20, 2003
    Item
      2 and 5: Acquisition of EntreMetrixJanuary
      30, 2003
    Items
      2, 5, and 7: Acquisition of Sespe Pharmacy


**ITEM
14.**Principal
Accountant Fees and Services

The
Company paid or accrued the following fees in each of the prior two fiscal years
to its independent certified public accountants, Pohl, McNabola, Berg & Co.,
LLP:


For
      the Year Ended December 31,2004
    2003Audit
      Fees
    $
      60,000
    $
      42,095Audit-Related
      Fees
    $
      28,621
    $
      39,882Tax
      FeesAll
      Other Fees
    $
      19,612Total
      Fees
    $108,233
    $81,977

"Audit
Fees" consisted of fees billed for services rendered for the audit of the
Company’s annual financial statements and audit related fees are for review of
the financial statements included in the Company’s quarterly reports on Form
10-QSB.

“All
Other Fees” consisted of fees associated with the SB2 and S-8 filings and work
related with the production of documents for the H.D. Smith law
suit.


22

**Signatures**

In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Kaire
Holdings Incorporated

By:/s/Steven
R. Westlund
Dated:
June 1, 2005

In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

/s/Steven
R. WestlundJune 1,
2005
Steven R.
Westlund Chief Executive Officer,
Principal
Financial Officer and Director


/s/Randall
JonesJune 1,
2005
Randall
Jones: Acting Chief Financial Officer

23


















**Kaire
Holdings Incorporated**
**and
Subsidiaries**

**Consolidated
Financial Statements**
**for
the Years Ended**
**December
31, 2004 and 2003**


24



**Kaire
Holdings Incorporated**
**and
Subsidiaries**

**Consolidated
Financial Statements**

**December
31, 2004 and 2003**




**C
O N T E N T S**




Report
      of Independent Registered Public Accountants
    F1Consolidated
      Balance Sheets
    F2
      - F3Consolidated
      Statements of Operations
    F4Consolidated
      Statements of Stockholders’ Equity
    F5Consolidated
      Statements of Cash Flows
    F6
      - F8Notes
      to Consolidated Financial Statements
    F9
      - F40



25










**Report
of Independent Registered Public Accountants**




To the
stockholders and Board of Directors of
Kaire
Holdings Incorporated and Subsidiaries


We have
audited the accompanying consolidated balance sheets of Kaire Holdings
Incorporated and Subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 audit provides a
reasonable basis for our opinion.

In our
opinion, the consolidated 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, 2004 and 2003, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with U.S. generally accepted accounting principles.

The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred substantial net
losses and utilized substantial amounts of cash in its operating activities over
the past several years and as of December 31, 2004, has an accumulated deficit
of $41,732,334 and a stockholders’ deficit of $1,425,955. These matters, among
others, raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are described in Note 2.
These consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.





*/s/
Pohl, McNabola, Berg and Company, LLP*
*San
Francisco, California*
*April
29, 2005*




F-1
**Kaire Holdings Incorporated**
**And Subsidiaries**
**Consolidated Balance Sheets**
**As Of December 31, 2004 and 2003**

ASSETS2004
    
    2003Current
      AssetsCash
      and cash equivalents
    $
    -
    
    $
    84,985Accounts
      receivable, trade
    
    265,522
    
    
    66,762Inventory
    
    149,939
    
    
    85,228Deposits
    
    -
    
    
    45,549Net
      assets of discontinued operations held for sale -
    Entremetrix
    
    -
    
    
    29,239Total
      Current Assets
    
    415,461
    
    
    311,763Other
      AssetsProperty
      and equipment, net of accumulated depreciation
    
    69,785
    
    
    83,413Total
      Other Assets
    
    69,785
    
    
    83,413Total
      Assets
    $
    485,246
    
    $
    395,176









(continued)




The
accompanying notes are an integral part of these financial
statements.
F-2
**Kaire Holdings Incorporated**
**And Subsidiaries**
**Consolidated Balance Sheets (continued)**
**As Of December 31, 2004 and
2003**


LIABILITIES
      AND STOCKHOLDERS' EQUITY2004
    
    2003Current
      LiabilitiesBank
      overdraft
    $
    19,931
    
    $
    -Accounts
      payable and accrued expenses
    
    449,782
    
    
    842,934Income
      tax payable
    
    647
    
    
    14,500Loans
      payable
    
    49,000
    
    
    68,384Notes
      payable - related parties
    
    13,281
    
    
    5,746Advances
      from shareholders
    
    73,607
    
    
    63,707Liabilities
      of discontinued operations - Classic Care
    
    145,611
    
    
    583,659Accrued
      interest - convertible debt
    
    207,304
    
    
    230,821Convertible
      notes - current portion
    
    566,158
    
    
    868,567Total
      Current liabilities
    
    1,525,321
    
    
    2,678,318Long
      term liabilitiesConvertible
      notes payable and debentures
    
    385,880
    
    
    95,574Total
      long term liabilities
    
    385,880
    
    
    95,574Total
      Liabilities
    
    1,911,201
    
    
    2,773,892Stockholders'
      equityCommon
      stock, $0.001 par value900,000,000
      shares authorized; 30,877,252 and 7,393,007shares
      issued and outstanding in 2004 and 2003, respectively
    
    30,878
    
    
    7,393Additional
      paid in capital
    
    40,275,501
    
    
    38,503,257Accumulated
      deficit
    
    (41,732,334)
    
    
    (40,889,366)Total
      Stockholders' Equity
    
    (1,425,955)
    
    
    (2,378,716)Total
      Liabilities and Stockholders' Equity
    $
    485,246
    
    $
    395,176



The
accompanying notes are an integral part of these financial
statements.
F-3

**Kaire Holdings Incorporated**
**And Subsidiaries**
**Consolidated Statements Of Operations**
**For The Years Ending December 31, 2004 and
2003**

2004
    
    2003Net
      revenues
    $
    2,350,847
    
    $
    1,256,806Cost
      of goods sold
    
    (1,986,280)
    
    
    (884,918)Gross
      Profit
    
    364,567
    
    
    371,888Operating
      ExpensesSalaries
    
    437,400
    
    
    441,190Depreciation
      and amortization
    
    28,340
    
    
    38,036General
      and administrative
    
    1,195,127
    
    
    879,706Selling
      expense
    
    21,064
    
    
    6,575Rent
    
    
    35,150
    
    
    51,548Total
      Operating Expenses
    
    1,717,081
    
    
    1,417,055Loss
      from operations
    
    (1,352,514)
    
    
    (1,045,167)Other
      Income (Expenses)Interest
      expense
    
    (404,743)
    
    
    (83,146)Miscellaneous
      income
    
    5,692
    
    
    27,760Gain
      on settlement of notes payable
    
    137,149
    
    
    10,055Loss
      on disposal of assets
    
    -
    
    
    (12,000)Gain
      on settlement of litigation
    
    115,243
    
    
    -Total
      Other Income (Expenses)
    
    (146,659)
    
    
    (57,331)Loss
      from continuing operations before income taxes
    
    (1,499,173)
    
    
    (1,102,498)****Provision
      for income taxes
    
    (3,404)
    
    
    (1,600)Loss
      from continuing operations
    ****
    (1,502,577)
    
    ****
    (1,104,098)Discontinued
      operationsIncome
      from operations of discontinued segment (Classic Care)net
      of income tax expense of $800 in 2003
    
    438,048
    
    
    15,313Loss
      from operations of discontinued segment (Entremetrix), netof
      income tax expense of $800 for the year ended December 31,
      2003
    
    (55,287)
    
    
    (239,055)Gain
      on sale discontinued segment (Entremetrix)
    
    276,848
    
    
    -Gain
      on disposal of assets of discontinued segment (Classic
    Care)
    ****
    -
    
    
    41,993Gain/(Loss)
      from Discontinued Operations
    ****
    659,609
    
    
    (181,749)Net
      Loss
    
    $
    (842,968)
    
    $
    (1,285,847)****(Loss)
      earnings per weighted average share ofcommon
      stock outstanding - basic and dilutedFrom
      continuing operations
    $
    (0.06)
    
    $
    (0.25)From
      discontinued operations
    
    0.01
    
    
    (0.04)Total
      (loss) earnings per share - basic and diluted
    $
    (0.05)
    
    $
    (0.29)Weighted-average
      shares outstanding - basic and diluted
    
    26,501,514
    
    
    4,453,420



The
accompanying notes are an integral part of these financial
statements.
F-4
**Kaire Holdings Incorporated**
**And Subsidiaries**
**Consolidated Statements Of Stockholders'
Equity**
**For The Years Ending December 31, 2004 and
2003**


AdditionalCommon
      Stock
    
    Paid-In
    
    AccumulatedShares
    
    
    Amount
    
    Capital
    
    Deficit
    
    TotalBalance,
      December 31, 2002
    2,163,691
    
    $
    2,163
    
    $
    37,462,910
    
    $
    (39,603,519)
    
    $
    (2,138,446)Issued
      for conversion of notes payable
    615,000
    
    
    615
    
    
    21,485
    
    
    -
    
    
    22,100Bond
      discount
    -
    
    
    -
    
    
    158,571
    
    
    -
    
    
    158,571Warrant
      issuance
    -
    
    
    -
    
    
    127,600
    
    
    -
    
    
    127,600Issued
      for professional services and compensation
    3,363,733
    
    
    3,364
    
    
    483,941
    
    
    -
    
    
    487,305Acquisition
      of Entremetrix
    1,250,000
    
    
    1,250
    
    
    248,750
    
    
    -
    
    
    250,000Other
    583
    
    
    1
    
    
    -
    
    
    -
    
    
    1Net
      loss
    -
    
    
    -
    
    
    -
    
    
    (1,285,847)
    
    
    (1,285,847)Balance,
      December 31, 2003
    7,393,007
    
    $
    7,393
    
    $
    38,503,257
    
    $
    (40,889,366)
    
    $
    (2,378,716)Issued
      for conversion of notes payable
    13,752,948
    
    
    13,753
    
    
    450,588
    
    
    -
    
    
    464,341Issued
      for conversion of accrued interest
    2,678,570
    
    
    2,679
    
    
    72,321
    
    
    -
    
    
    75,000Exercise
      of warrants
    2,200,000
    
    
    2,200
    
    
    129,800
    
    
    -
    
    
    132,000Bond
      discount
    -
    
    
    -
    
    
    337,894
    
    
    -
    
    
    337,894Issued
      for professional services and compensation
    4,296,227
    
    
    4,296
    
    
    654,218
    
    
    -
    
    
    658,514Issued
      for prior years' compensation
    1,806,500
    
    
    1,807
    
    
    376,173
    
    
    -
    
    
    377,980Cancellation
      of Entremetrix
    (1,250,000)
    
    
    (1,250)
    
    
    (248,750)
    
    
    -
    
    
    (250,000)Net
      loss
    -
    
    
    -
    
    
    -
    
    
    (842,968)
    
    
    (842,968)Balance,
      December 31, 2004
    30,877,252
    
    $
    30,878
    
    $
    40,275,501
    
    $
    (41,732,334)
    
    $
    (1,425,955)










The
accompanying notes are an integral part of these financial
statements.
F-5
**Kaire Holdings Incorporated**
**And Subsidiaries**
**Consolidated Statements Of Cash Flows**
**For The Years Ending December 31, 2004 and
2003**

2004
    
    2003Increase
      (decrease) in cash and cash equivalentsNet
      loss
    $
    (842,968)
    
    $
    (1,285,847)Adjustments
      to reconcile net loss to net cash usedin
      operating activitiesDepreciation
      and amortization
    
    28,340
    
    
    38,036Amortization
      of warrant and beneficial conversion feature
    
    281,114
    
    
    23,826Common
      stock issued for professional services and compensation
    
    658,514
    
    
    487,305Common
      stock issued for payment of interest
    
    -
    
    
    324Gain
      on extinguishment of notes payable and related interest
    
    (137,149)
    
    
    -Loss
      on disposal of assets
    
    -
    
    
    12,000(Income)
      loss from operations of discontinued operations - Classic
    Care
    
    (438,048)
    
    
    (15,313)(Gain)
      loss on disposition of assets of discontinued operations - Classic
      Care
    
    -
    
    
    (41,993)Gain
      on sale of discontinued operations - EntreMetrix
    
    (276,848)
    
    
    -Gain
      on settlement
    
    (115,243)
    
    
    -Amortization
      of deferred financing costs
    
    21,667Debt
      issuance costs
    
    -
    
    
    -(Income)
      loss from operations of discontinued operations -
    entreMetrix
    
    55,287
    
    
    239,055Change
      in net assets and liabilities of discontinued operations - Classic
      Care
    
    -
    
    
    54,499Change
      in net assets and liabilities of discontinued operations -
      entreMetrix
    
    -
    
    
    (29,239)Other
    
    (10,271)
    
    
    7,258Total
      adjustments to net income
    $
    (775,605)
    
    $
    (510,089)Cash
      flow from operating activities:Changes
      in operating assets and liabilities:Increase
      in trade accounts receivable
    $
    (198,760)
    
    $
    (44,495)Increase
      in bank overdraft
    
    19,931
    
    
    -Decrease
      in deposits
    
    -
    
    
    8,370Increase
      in inventory
    
    (64,711)
    
    
    (69,160)Increase
      (decrease) in income and sales tax payable
    
    (13,853)
    
    
    4,000Increase
      in accrued interest on convertible notes
    
    51,483
    
    
    55,477Increase
      in accounts payable and accrued expenses
    
    196,191
    
    
    269,102Cash
      flow generated by (used in) operating activities
    $
    (9,719)
    
    $
    223,294Cash
      flow from investing activities:Purchase
      of property and equipment
    $
    (14,712)
    
    $
    (40,303)Cash
      acquired in acquisition of entreMetrix, Inc.
    
    -
    
    
    27,576Net
      cash generated by (used in) investing activities
    $
    (14,712)
    
    $
    (12,727)





(continued)



The
accompanying notes are an integral part of these financial
statements.
F-6
**Kaire Holdings Incorporated**
**And Subsidiaries**
**Consolidated Statements Of Cash Flows
(continued)**
**For The Years Ending December 31, 2004 and
2003**

2004
    
    2003Cash
      flow from financing activities:Proceeds
      from notes payable - shareholders
    $
    9,900
    
    $
    38,089Payments
      on notes payable - shareholders
    
    -
    
    
    (2,000)Proceeds
      from notes payable - related parties
    
    9,525
    
    
    5,746Payments
      on notes payable - related parties
    
    (1,990)
    
    
    -Proceeds
      from loans
    
    60,000
    
    
    -Payments
      on loans
    
    (79,384)
    
    
    (47,684)Deferred
      financing costs
    
    (65,000)
    
    
    -Proceeds
      from convertible notes payable
    
    650,000
    
    
    -Proceeds
      from conversion of warrants
    
    132,000
    
    
    370,000Net
      cash generated by (used in) financing activities
    $
    715,051
    
    $
    364,151Net
      (decrease) increase in cash and cash equivalents
    $
    (84,985)
    
    $
    64,629Cash
      and cash equivalents at beginning of year
    
    84,985
    
    
    20,356Cash
      and cash equivalents at end of period
    $
    -
    
    $
    84,985**Supplementary
      disclosures of cash flow information**Cash
      paid during the year forInterest
    $
    2,561
    
    $
    4,463Taxes
    $
    12,399
    
    $
    3,200**Supplemental
      schedule of non-cash investing and financing
      activities:**During
      the twelve months ended December 31, 2004, the Company entered into the
      following non-cash transactions:Gain
      on extinguishment of note payables and related accrued interest of
      $137,482Gain
      on settlement of litigation of $115,243Issued
      4,296,227 shares of common stock for consulting services and compensation
      valued at $658,515Issued
      16,431,518 shares of common stock for conversion of $539,341 of notes
      payable and interest.Issued
      1,806,500 shares of common stock to an officer and employees for prior
      year compensation valued at $377,980Retired
      1,250,000 shares of commons stock valued at $250,000.The
      sale of entreMetrix resulted in a non-cash gain of $276,848.



(continued)


The
accompanying notes are an integral part of these financial
statements.
F- 7
-
**Kaire Holdings Incorporated**
**And Subsidiaries**
**Consolidated Statements Of Cash Flows
(continued)**
**For The Years Ending December 31, 2004 and
2003**

**Supplemental
      schedule of non-cash investing and financing
      activities:**During
      the year ended December 31, 2003, the Company entered into the followingnon-cash
      transactions:Issued
      615,000 shares of common stock for conversion of $21,776 of principal on
      notes payable, and $628 of accrued interest.Issued
      3,363,733 shares of common stock for legal and consulting services valued
      at $487,305In
      March 2003, the Company returned $26,625 of vehicles under capital leases
      to the lessors.In
      January 2003, the Company acquired assets ofSespe
      PharmacyInventory
    $
    81,068Property
      and equipment
    
    100,000Assets
      acquired
    
    181,068Cash
      paid
    
    (65,000)Notes
      payable
    
    (116,068)Net
    $
    -In
      March 2003, the Company acquired entreMetrix, Inc. for 1,250,000
      sharesof
      common stock and a note payable for $2.5 millionCash
      acquired in transaction
    $
    27,576Accounts
      receivable
    
    958Prepaid
      expenses and other assets
    
    135,253Goodwill
    
    2,906,985Property
      and equipment
    
    51,323Accounts
      payable and accrued expenses
    
    (262,620)Notes
      payable
    
    (109,475)Issuance
      of common stock - acquisition
    
    (250,000)Note
      payable - acquisition
    
    (2,500,000)$
    -



The
accompanying notes are an integral part of these financial
statements.
F-
8

**Kaire
Holdings Incorporated**
**And Subsidiaries**
**Notes To Consolidated Financial Statements**
**December 31, 2004 and 2003**
****
****
**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
November 2002, the Company, through its subsidiary Effective Health, Inc.,
purchased certain assets of Sespe Pharmacy, a privately held company located in
Fillmore, California. The asset acquisition was concluded on January 26,
2003.


History

In 1999,
the Company formed YesRx.Com, Inc., an Internet drugstore focused on
pharmaceuticals, health, wellness and beauty products. The Company 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.

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 operated 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
purchased prescription drugs in bulk and filled prescriptions for individuals
living in the aforementioned facilities. Primary sales were to individuals and
consist of packaged prescription drugs in prescribed dosages. These packaged
drug sales were primarily paid for by Medi-Cal, and the balances of the sales
that are not covered by Medi-Cal were paid directly by individuals. Classic Care
billed Medi-Cal and other third-party payors on behalf of the customer and
receives payment directly from Medi-Cal.

On April
17, 2002, Classic Care received notice from the State of California Department
of Health Services (“DHS”) that they were suspending Classic Care Pharmacy’s
Medi-cal provider number and withholding 100% of Classic Care Pharmacy’s
Medi-cal payments, alleging Classic Care Pharmacy had submitted numerous
patients’ claims without proper documentation.

As a
result of the DHS claim, on May 20, 2002, the Company and the original Classic
Care Shareholders reached an agreement to settle all amounts due them. This
agreement resulted in the Company selling the long-term services business
clients to the original Classic Care shareholders and relinquishing all rights
in the long-term services business in return for a release from repaying the
promissory notes and contingent payments resulting from the original
acquisition. In December 2002, the Company was informed by the Department of
Health Services (“DHS”) that the Medi-Cal Program was taking the following
actions against Classic Care: 1) withholding 100 percent of payment to Classic
Care; and 2) temporarily suspending and deactivating Classic Care’s Medi-Cal
provider number. In January 2003, the Company’s management decided to start the
process of a voluntary dissolution of Classic Care.

F-9

**1.****Summary
of Significant Accounting Policies (continued)**

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.., EFFECTIVE Health, Inc. (dba Sespe
Pharmacy), and YesRx.com. Intercompany accounts and transactions have been
eliminated upon consolidation.


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 valuation of goodwill, allowance for doubtful accounts and third-party
contractual agreements, and the net realizable value of assets of discontinued
operations.


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 during the year maintained cash balances in excess of the
federally insured limit of $100,000 per institution. There were no uninsured
balances as of December 31, 2004 and 2003.


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.


F-10

**1.****Summary
of Significant Accounting Policies (continued)**

Third-Party
Contractual Adjustments

Contractual
adjustments represent the difference between the pharmacy’s established billing
rate for covered products and services and amounts reimbursed by third-party
payors, pursuant to reimbursement agreements.

For the
year ended December 31, 2004, gross revenues were approximately $3,000,000, less
approximately $650,000 of contractual adjustments based on reimbursement
contracts, resulting in net revenues of approximately 2,350,000


Net
Loss per Share

Loss per
common share is computed on the weighted average number of common shares
outstanding during each year. Basic loss per share is computed as net loss
applicable to common stockholders divided by the weighted average number of
common shares outstanding for the period. Diluted loss per share 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.

Effective
August 25, 2003, the Company concluded a reverse split at a ratio of 1-for-200.
All loss per share calculations and shares issued were retroactively adjusted to
reflect the reverse stock split.


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.

F-11

**1.****Summary
of Significant Accounting Policies (continued)**

Property
and Equipment (continued)

The
estimated service lives of property and equipment are principally as
follows:

Leasehold
      improvements
    3-7
      yearsComputers
      and equipment
    3-5
      yearsFurniture
      & Fixtures
    5-7
      yearsSoftware
    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 capitalizes 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. In 2002, the
Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets”, and accordingly goodwill and intangible assets with indefinite lives
are no longer amortized but instead tested for impairment at least annually. The
carrying amount of goodwill will be reviewed periodically based on the
undiscounted cash flows of the entities acquired over the remaining amortization
period.


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.



F-12

**1.****Summary
of Significant Accounting Policies (continued)**

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.

In 2004
and 2003, 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. In December 2002, the FASB issued SFAS No.148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." This
statement amends SFAS No.123, "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation. Pursuant
to SFAS No.123, the Company will continue to show pro forma disclosure related
to the expense attributable to the fair market value of stock options granted to
employees.


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 applied
to awards, exchanges of awards in business combinations, modifications to an
outstanding award, and exchanges in grantee status that occur.

The
Company did not issue any options or warrants to employees or consultants during
the years ended December 31, 2004 and 2003.



F-13

**1.****Summary
of Significant Accounting Policies (continued)**

Comprehensive
Income (Loss)

Statement
of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
(SFAS 130) established 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,
2004 and 2003, comprehensive loss is equivalent to the Company’s net
loss.


Long-Lived
Assets

In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” the Company
periodically evaluates the carrying value of long-lived assets to be held and
used, including intangible assets, when events and circumstances warrant such a
review. The carrying value of a long-lived asset is considered impaired when the
anticipated discounted cash flow from such asset is separately identifiable and
is less than its carrying value. In that event, a loss is recognized based on
the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Losses on long-lived assets to be disposed of are determined in a similar
manner, except that fair market values are reduced for the cost to
dispose.


Advertising
Costs

The
Company expenses advertising and marketing costs as they are incurred.
Advertising and marketing costs for the years ended December 31, 2004 and 2003
were $1,365 and $1,973, respectively.


Reclassifications

Certain
amounts in the 2003 financial statements have been reclassified to conform to
the 2004 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.

F-14

**1.****Summary
of Significant Accounting Policies (continued)**

Segment
and Geographic Information (continued)

The
Company managed its operations through two business segments: professional
employment organization and pharmacy operations. The Company entered the
professional employment business as a result of the Entremetrix, Inc.,
acquisition in March 2003. However, the Company sold Entremetrix, Inc., back to
its original shareholder in February 2004.

TheCompanyevaluatedperformancebasedonnetoperatingprofit.
Theoperatingsegmentsdonotsharestafforfacilities.
Payrollserviceswereprovidedby
Entremetrix, Inc., to the pharmacy business unit. Thecostsofoperatingeach
segmentarecaptureddiscretelywithineachsegment.
TheCompany’spropertyandequipment,inventory,andaccountsreceivablearecapturedandreporteddiscretelywithineachoperatingsegment.

The
operating results of Entremetrix, Inc. are shown as discontinued operations in
the financial statements. Due to the sale of Entremetrix, Inc. the Company
operates in only one segment.


Accounting
for Derivative Instruments and Hedging Activities

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.

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.

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.



F-15

**1.****Summary
of Significant Accounting Policies (continued)**

Recent
Accounting Pronouncements

During
May 2003, the FASB issued SFAS 150 - “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity”, effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective for public entities at the beginning of the first interim period
beginning after June 15, 2003. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a freestanding financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were
previously classified as equity. Some of the provisions of this Statement are
consistent with the current definition of liabilities in FASB Concepts Statement
No. 6, Elements of Consolidated Financial Statements. The adoption of this
statement had no impact on the Company’s consolidated financial
statements.

In
December 2003, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.” SAB 104
supersedes SAB 101, “Revenue Recognition in Consolidated Financial
Statements.” SAB 104’s primary purpose is to rescind accounting guidance
contained in SAB 101 related to multiple element revenue arrangements,
superseded as a result of the issuance of EITF 00-21, “Accounting for
Revenue Arrangements with Multiple Deliverables.” Additionally, SAB 104
rescinds the SEC’s Revenue Recognition in Consolidated Financial Statements
Frequently Asked Questions and Answers (“the FAQ”) issued with SAB 101 that
had been codified in SEC Topic 13, Revenue Recognition. Selected portions of the
FAQ have been incorporated into SAB 104. While the wording of SAB 104
has changed to reflect the issuance of EITF 00-21, the revenue recognition
principles of SAB 101 remain largely unchanged by the issuance of
SAB 104, which was effective upon issuance. The adoption of SAB 104
did not impact the consolidated financial statements.

In March
2004, the FASB approved the consensus reached on the Emerging Issues Task Force
(EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments.” The objective of this Issue is to provide
guidance for identifying impaired investments. EITF 03-1 also provides new
disclosure requirements for investments that are deemed to be temporarily
impaired. In September 2004, the FASB issued a FASB Staff Position (FSP) EITF
03-1-1 that delays the effective date of the measurement and recognition
guidance in EITF 03-1 until after further deliberations by the FASB. The
disclosure requirements are effective only for annual periods ending after June
15, 2004. The Company has evaluated the impact of the adoption of the disclosure
requirements of EITF 03-1 and does not believe it will have an impact to the
Company's overall consolidated results of operations or consolidated financial
position. Once the FASB reaches a final decision on the measurement and
recognition provisions, the Company will evaluate the impact of the adoption of
EITF 03-1.

In July
2004, the EITF issued a draft abstract for EITF Issue No. 04-08, "The Effect of
Contingently Convertible Debt on Diluted Earnings per Share" ("EITF 04-08").
EITF 04-08 reflects the Task Force's tentative conclusion that contingently
convertible debt should be included in diluted earnings per share computations
regardless of whether the market price trigger has been met. If adopted, the
consensus reached by the Task Force in this Issue will be effective for
reporting periods ending after December 15, 2004. Prior period earnings per
share amounts presented for comparative purposes would be required to be
restated to conform to this consensus and the Company would be required to
include the shares issuable upon the conversion of the Notes in the diluted
earnings per share computation for all periods during which the Notes are
outstanding Management does not expect the implementation of this new standard
to have a material impact on its computation of diluted earnings per share.
****
****
F-16
**1.****Summary
of Significant Accounting Policies (continued)**

Recent
Accounting Pronouncements (continued)

In
September 2004, the EITF delayed the effective date for the recognition and
measurement guidance previously discussed under EITF Issue No. 03-01, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" ("EITF 03-01") as included in paragraphs 10-20 of the proposed
statement. The proposed statement will clarify the meaning of
other-than-temporary impairment and its application to investments in debt and
equity securities, in particular investments within the scope of FASB Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and
investments accounted for under the cost method. The Company is currently
evaluating the effect of this proposed statement on its financial position and
results of operations.

In
November 2004, the Financial Accounting Standards Board Statement issued SFAS
No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4", which
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and charges regardless of whether they meet the criterion of "so
abnormal" that was originally stated in Accounting Research Bulletin No. 43,
chapter 4. In addition, SFAS No. 151 requires that the allocation of fixed
production overheads to conversion costs be based on the normal capacity of the
production facilities. SFAS No. 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. Management does not expect
the implementation of this new standard to have a material impact on its
financial position, results of operations and cash flows.

In
December 2004, the FASB issued a revision to SFAS 123, "Share-Based Payment, an
amendment of FASB Statements Nos. 123 and 95," that addresses the accounting for
share-based payment transactions in which a Company receives employee services
in exchange for either equity instruments of the Company or liabilities that are
based on the fair value of the Company's equity instruments or that may be
settled by the issuance of such equity instruments. This statement would
eliminate the ability to account for share-based compensation transactions using
the intrinsic method that the Company currently uses and generally would require
that such transactions be accounted for using a fair-value-based method and
recognized as expense in the consolidated statement of operations. The effective
date of this standard is for periods beginning after June 15, 2005. The Company
has determined that the adoption of SFAS 123R will result in the Company having
to recognize additional compensation expense related to the options or warrants
granted to employees, and it will have an impact on the Company’s net earnings
in the future. This standard requires expensing the fair value of stock option
grants and stock purchases under employee stock purchase plan.

In
December 2004, the Financial Accounting Standards Board Statement issued SFAS
No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29",
which amends Opinion 29 by eliminating the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS
No. 151 is effective for a fiscal year beginning after June 15, 2005, and
implementation is done prospectively. Management does not expect the
implementation of this new standard to have a material impact on its financial
position, results of operations and cash flows.

F-17

**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
$842,968 and $1,285,847 for the years ended December 31, 2004 and 2003,
respectively. The Company also had a net working deficit of $1,109,860 and
$2,366,555 for the years ended December 31, 2004 and 2003 respectively.
Additionally, the Company must raise additional capital to meet its working
capital needs. If the Company is unable to raise sufficient capital to fund its
operations for the Health Advocacy program, it might be required to discontinue
its pharmacy 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. The
Company has obtained additional debt financing subsequent to December 31,
2004.



**3.****Acquisition
of Sespe Pharmacy**

Effective
January 26, 2003, the Company concluded its agreement to purchase certain
tangible and intangible assets of Sespe Pharmacy, a privately held company, for
a total cost of $181,068. The Company had opened escrow in 2002, and made a
deposit of $40,000. The agreed purchase price consists of (i)) a short-term
promissory note in the amount of $81,000 due 120 days after, and (ii) a cash
payment of $100,068. Under the terms of the agreement, the Company purchased the
Sespe Pharmacy name, all inventory, office and pharmacy equipment, furniture and
fixtures.

The
acquisition was recorded using the purchase method of accounting. Accordingly,
the purchase price has been allocated to the assets acquired based on the
estimated fair values at the date of acquisition. The operating results of this
acquisition are included in the Company’s Consolidated Results of Operations
from the date of acquisition.

The
following table presents the allocation of the purchase price, including related
acquisition costs, to the assets and liabilities acquired:

Inventory
    $
    81,068Property
      and equipment
    
    100,000Total
      purchase price
    $
    181,068




F-18

**4.****Accounts
Receivable - Trade**

In 2004
and 2003, approximately 85% and 94% of net revenues of continuing operations
were derived under federal, state and third-party insurance reimbursement
programs.

MediCal
    65%Private
      Party
    15%Other
      third-parties
    20%

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. The
Company determined that no allowance for doubtful accounts as of December 31,
2004 and 2003 was necessary.



**5.****Intangible
Assets**


The
Company initially recorded goodwill attributable to Entremetrix of $2,906,985.
In February 2004, the Company decided to sell Entremetrix back to its original
shareholder for a return of the original consideration paid by the Company. In
2003, the amount of goodwill is classified in the Balance Sheet as a component
of assets of discontinued operations. The Company has no intangible assets as of
December 31, 2004.



**6.****Common
Stock Transactions**

Authorization
to Effect a Reverse Stock Split

On March
28, 2003, the Company obtained a written consent of a majority of its
shareholders to amend the Certificate of Incorporation to effect up to a
one-for-200 reverse split of common stock. The exchange ratio was approved by
the Board of Directors. The exchange ratio was one newly issued share for each
two hundred shares of common stock. As per a Board of Directors resolution, this
Amendment will have no effect on the par value of the common stock, which will
remain at $0.001. The reverse stock split was effective August 25,
2003.

F-19


**6.****Common
Stock Transactions (continued)**

Authorization
to Effect a Reverse Stock Split (continued)

Pursuant
to the Reverse Stock Split, each holder of shares of Common Stock (the "Old
Common Stock") immediately prior to the effectiveness of the Reverse Stock Split
will become the holder of fewer shares of Common Stock (the "New Common Stock")
after consummation of the Reverse Stock Split. Although the Reverse Stock Split,
did not, by itself, impact the Company's assets or properties, the Reverse Stock
Split could result in a decrease in the Company's aggregate market value. The
Reverse Stock Split did not result in some stockholders owning "odd-lots.” All
fractional share holdings were rounded up to whole shares. For example, if a
shareholder owns 350 shares of Old Common Stock, after a 1 for 200 Reverse Stock
Split, that shareholder now owns 2 shares of New Common Stock, not 1 3/4 shares
of New Common Stock.

Based on
approximately 898,484,863 shares of Common Stock issued and outstanding as of
August 25, 2003, the following table reflects a range of the approximate
percentage reduction in the outstanding shares of Common Stock and the
approximate number of shares of Common Stock that are outstanding as a result of
the Reverse Stock Split (not accounting for any proposed increase in authorized
shares as described above):

Reverse
    
    Percentage
    
    Shares
      To BeStock
      Split
    
    Reduction
    
    Outstanding1
      for 200
    
    99.5%
    
    4,492,425


All
outstanding options, warrants, rights and convertible securities were
appropriately adjusted for the Reverse Stock Split automatically on the
effective date of the Reverse Stock Split. The Reverse Stock Split affected all
stockholders equally and did not affect any stockholder's proportionate equity
interest in the Company except for those stockholders whose fractional shares
were rounded up.

None of
the rights currently accruing to holders of the Common Stock, options or
warrants to purchase Common Stock or securities convertible into Common Stock
were affected by the Reverse Stock Split. Following the Reverse Stock Split,
each share of New Common Stock entitles the holder thereof to one vote per share
and was otherwise be identical to one share of the Old Common Stock.

The
percentage ownership of management, the number of stockholders or any aspect of
the Company's business did not change materially because of the Reverse Stock
Split.


Common
stock transactions during 2004

·
    The
      Company converted $464,341 in 8% convertible notes payable into 13,752,948
      shares of its common stock.

·
    The
      Company converted $75,000 in convertible accrued interest into 2,678,570
      shares of its common stock.

F-20

**6.****Common
Stock Transactions (continued)**

Common
stock transactions during 2003 (continued)

·
    The
      Company issued 3,897,727 shares of its common stock with a market value of
      $615,248 for consulting services provided to the Company.

·
    The
      Company converted warrants issued to note holders into 2,200,000 shares of
      its common stock for $132,000.

·
    The
      Company issued 205,000 shares of its common stock with a market value of
      $51,247 to employees in lieu of current and prior year
      compensation.

·
    The
      Company issued 2,000,000 shares of its common stock to its CEO for current
      and prior year compensation totaling $370,000.

·
    The
      Company retired 1,250,000 shares of its common stock as result of the sale
      of entreMetrix, Inc. back to its original shareholder.


Common
stock transactions during 2003

·
    On
      March 21, 2003, a holder of the Company’s 8% convertible debentures
      elected to convert an aggregate of $1,776 principal amount of the
      debentures and $324 of related interest into 15,000 shares of the
      Company’s common stock.

·
    On
      December 26, 2003, a holder of the Company’s 8% convertible debentures
      elected to convert an aggregate of $20,000 principal amount of the
      debentures into 600,000 shares of the Company’s common stock.

·
    The
      Company issued 2,375,000 shares of its common stock to a consultant for
      providing management and financial consulting services. The market value
      of the services received was $204,685.

·
    The
      Company issued 288,733 shares of its common stock to various consultants
      in lieu of cash payments for services rendered. The aggregate value of
      services was $86,620.

·
    The
      Company issued 700,000 shares of its common stock under the terms of the
      2003 Legal and Consulting Services Plan. The common stock issued had an
      aggregate market value of $196,000.

·
    The
      Company issued 1,250,000 shares of its common stock, which had an
      approximate market value of $250,000, in connection with the acquisition
      of Entremetrix, Inc.



F-21

**6.****Common
Stock Transactions (continued)**

2003
Consulting and Legal Services Plan

In March
2003, the Board of Directors approved the 2003 Consulting and Legal Services
Plan. The purpose of the 2003 Consulting and Legal Services Plan (“Plan”) is to
provide the Company with a means of compensating selected key consultants and
legal service providers to the Company and its subsidiaries for their services
rendered with shares of Common Stock of the Company. The Plan will be
administered by the Company’s Board of Directors (the “Board”). The Company’s
Board shall (a) select those consultants legal service providers to whom shares
of the Company’s Common Stock shall be awarded or sold, and (b) determine the
number of shares to be awarded or sold; the time or times at which shares shall
be awarded or sold; whether the shares to be awarded or sold will be registered
with the Securities and Exchange Commission; and such conditions, rights of
repurchase, rights of first refusal or other transfer restrictions as the Board
may determine. Each award or sale of shares under the Plan may or may not be
evidenced by a written agreement between the Company and the persons to whom
shares of the Company’s Common Stock are awarded or sold. From time to time, the
Board may make such changes in or additions to the Plan as it may deem proper
and in the best interests of the Company and its Stockholders. The Board may
also suspend or terminate the Plan at any time, without notice, and in its sole
discretion.

For
purposes of the Plan, the Board of Directors is authorized to sell or award up
to 700,000 shares and/or options of the Company’s Common Stock at $0.001 par
value per share (“Common Stock”).

All key
consultants and qualified legal service providers to the Company and any of its
subsidiaries are eligible to participate in the Plan.

The Board
approved the issuance of 700,000 shares to various consultants under the terms
of the Plan.

The Plan
was amended on December 30, 2003 pursuant to a Board of Directors resolution to
increase the number of shares issuable under the Plan by 4,000,000 shares.

The Plan
was amended on June 2, 2004 pursuant to a Board of Directors resolution to
increase the number of shares issuable under the Plan by another 3,950,000
shares.



**7.****Related
Party Transactions**

The
following transactions occurred between the Company and certain related
parties:

Source
One Group

The
Company’s chief financial officer also serves as the chief financial officer of
Dalrada Financial Corporation (Dalrada). Dalrada through its subsidiary Source
One Group (SOG) operates a professional employment organization. SOG provides
services for the Company as its professional employment organization. The
Company entered into an Employment Services Agreement with SOG pursuant to which
SOG has agreed to render professional employment and related services to the
Company for a fee. The Company paid fees to SOG totaling $9,459 in 2004 and none
in 2003, respectively. The fees charged by SOG to the Company are at the
prevailing rate that SOG charges others.

F-22

**8.****Property
and Equipment**

Property
and equipment at December 31, 2004 and 2003 consisted of the
following:

2004
    
    2003Furniture
      and fixtures
    $
    85,000
    
    $
    85,000Vehicles
    
    14,712
    
    
    -Computers
      and equipment
    
    21,144
    
    
    21,144120,856
    
    
    106,144Less
      accumulated depreciation and amortization
    
    (51,071)
    
    
    (22,731)Total
    $
    69,785
    
    $
    83,413


Depreciation
and amortization expense for the years ended December 31, 2004 and 2003 was
$28,340 and $38,036, respectively.



**9.****Accounts
Payable and Accrued Expenses**

Accounts
payable and accrued expenses at December 31, 2004 and 2003 consisted of the
following:

2004
    
    2003Accounts
      payable
    $
    356,696
    
    $
    325,748Accrued
      professional and related fees
    
    90,000
    
    
    134,250Accrued
      compensation and related payroll taxes
    
    -
    
    
    324,380Accrued
      interest payable
    
    2,000
    
    
    41,807Other
      accrued expenses
    
    689
    
    
    16,749Total
    $
    449,385
    
    
    842,934


F-23

**10.****Convertible
Notes Payable and Debentures**

Convertible
debentures consist of the following at December 31, 2004 and 2003:


2004
    
    20038%
      convertible subordinated debentures, originally due in October 2002 and
      now on demand. Interest is payable quarterly, and principal is due at
      maturity.
    $
    38,547
    
    $
    365,6418%
      convertible subordinated debentures, originally due in January 2003 and
      now on demand. Interest is payable quarterly, and principal is due at
      maturity.
    
    196,103
    
    
    283,3508%
      convertible subordinated debentures, originally due in August 2003 and now
      on demand. Interest is payable quarterly, and principal is due at
      maturity.
    
    121,926
    
    
    121,9268%
      convertible subordinated debentures, due in December 2005. Interest is
      payable quarterly, and principal is due at maturity.
    
    320,000
    
    
    370,0008%
      convertible subordinated debentures, due in April 2006. Interest is
      payable quarterly, and principal is due at maturity.
    
    650,000
    
    
    -8%
      convertible subordinated debentures, originally due in May 2002 and now on
      demand. Interest is payable quarterly, and principal is due at
      maturity.
    
    -
    
    
    26,65010%
      convertible subordinated debentures, due on demand. Interest is payable
      semi-annually, and principal is due at maturity.
    
    -
    
    
    71,0001,326,576
    
    
    1,238,567Less:
      Unamortized Bond Discount and Unamortized Debt Issuance
    Costs
    
    (374,538)
    
    
    (274,426)Total
      debt
    
    952,038
    
    
    964,141Less:
      current portion
    
    (566,158)
    
    
    (868,567)Convertible
      debentures, less current portion
    $
    385,880
    
    $
    95,574


F-24

**10.****Convertible
Notes Payable and Debentures (continued)**

10%
Convertible Debentures

During
January through May 1997, the Company issued convertible notes aggregating to
$479,655, which were 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. $71,000 of these notes was still outstanding as
of December 31, 2003. The Company has not been contacted nor been able to
contact these notes holders for over four years. Accordingly, these notes were
written off as of December 31, 2004, based on the advice of counsel.
..


8%
Convertible Debentures

During
2000, the Company issued convertible notes that were 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 2004, the noteholders
converted $327,094 of the outstanding principal into the Company’s common stock.
$38,547 and $365,641 of these notes was still outstanding as of December 31,
2004 and 2003 respectively.

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 20,000 shares of the Company’s common stock to various parties as part
of these financing agreements.

Total
funds received of $1,200,000 were allocated as follows: $760,000 to 8%
convertible notes; $140,000 to the note warrants; and $300,000 to convertible
benefit feature. The value allocated to the note warrants and the beneficial
conversion feature was amortized to interest expense over the term of the
notes.

The 8%
convertible debentures 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.

During
January 2001, the Company issued convertible notes aggregating to $500,000,
which were 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. As of December 31, 2003, the Company had converted $196,650 into its
common stock. In 2004, the Company converted an additional $87,247 into common
stock. The Company has an outstanding principal balance of $196,103 and 283,350
on these notes as of December 31, 2004 and December 31, 2003,
respectively.

F-25

**10.****Convertible
Notes Payable and Debentures (continued)**

8%
Convertible Debentures (continued)

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 2003, 2002 and 2001, the noteholders converted $1,776, $31,651 and
$144,647, respectively, into the Company’s common stock, and the principal
balance of $121,926 on this note was still outstanding as of December 31, 2004
and 2003.

In
November 2003, the Company obtained debt financing of $370,000 through the
issuance of convertible notes payable. The Company also issued warrants to
purchase 2,200,000 shares of the Company’s common stock to various parties as
part of these financing agreements.

Total
funds received of $370,000 were allocated $83,829 to the 8% convertible notes,
$127,600 to the note warrants and $158,571 to the beneficial conversion feature.
The value allocated to the note warrants and the beneficial conversion feature
is being amortized to interest expense over the term of the notes.

The 8%
convertible debentures issued in November 2003 have a conversion price that is
the lesser of (1) 70% 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.

The
warrants issued are convertible into 2,200,000 shares common stock at an
exercise price of $0.06 per share, which is based upon the lowest closing price
for the five days preceding the date of grant. The exercise price can be
adjusted down by the Company, and the Company did not reprice any warrants in
2004. In February and March 2004, the warrant holders exercised all the
outstanding warrants.

In May
2004, the Company concluded debt financing for $650,000, whereby the following
8% convertible debentures were issued: $350,000 to Alpha Capital
Aktiengesellschaft; $200,000 to Gamma Opportunity Capital Partners, LP; and
$100,000 to Longview Fund, LP. Additionally, in conjunction with these
convertible debentures, the Company issued detachable warrants to purchase
4,444,444 shares of common stock in conjunction with the convertible notes. The
exercise price of the warrants is $0.17 per share, and the warrants mature in
five years.

The
conversion price per share of the above debentures shall be equal to the lesser
of (i) $.09 or (ii) eighty-five (85%) of the average of the closing bid prices
for the fifteen (15) trading days prior to but not including the Conversion Date
for the Common Stock. Closing bid price shall mean the last closing bid price as
reported by Bloomberg LP. The Conversion Price shall be $.09 per share unless at
any time after the closing price of the Common Stock as reported by Bloomberg LP
for the Principal Market is less than $0.09 per share for fifteen (15)
consecutive trading days.

Total
funds received of $650,000 were allocated $312,108 to the 8% convertible notes,
$240,834 to the note warrants and $97,059 to the beneficial conversion feature.
The value allocated to the note warrants and the beneficial conversion feature
is being amortized to interest expense over the term of the notes.

F-26

**10.****Convertible
Notes Payable and Debentures (continued)**

Debt
Assignment

On
December 12, 2003, the holders of three outstanding convertible notes assigned
their rights to three other third party entities. The notes were assigned are as
follows:


**ISSUE
      DATE**
    
    **ORIGINAL
      HOLDER**
    
    **ORIGINAL**
      **PRINCIPAL**
    
    **CURRENT
      PRINCIPAL AMOUNT**10/26/2000
    
    Keshet
      Fund, L.P.
    
    $
    390,000
    
    $
    385,6431/10/2001
    
    Keshet,
      L.P.
    
    $
    283,350
    
    
    283,3508/17/2001
    
    Keshet
      Fund, L.P.
    
    $
    300,000
    
    
    121,927$
    790,920

The
convertible notes were assigned as follows:

**NEW
      ASSIGNED NOTE HOLDER**
    
    **ALLOCATION
      OF 10/26/2000 NOTE**
    
    **ALLOCATION
      OF 1/10/2001 NOTE**
    
    **ALLOCATION
      OF 8/17/2001 NOTE**ALPHA
      CAPITAL AKTIENGESELLSCHAFT
      Pradafant
      7
      9490
      Furstentums
      Vaduz,
      Lichtenstein
      Fax:
      011-42-32323196
    
    $
    128,547
    
    $
    94,450
    
    $
    40,642GAMMA
      OPPORTUNITY CAPITAL PARTNERS, LP
      British
      Colonial Centre of Commerce
      One
      Bay Street, Suite 401
      Nassau
      (NP), The Bahamas
      Fax:
      (242) 322-6657
    
    
    128,547
    
    
    94,450
    
    
    40,642CAMDEN
      INTERNATIONAL LTD.
      Charlotte
      House, Charlotte Street
      P.O.
      Box N9204
      Nassau,
      Bahamas
      Fax:
      415-835-8320
    
    
    128,547
    
    
    94,450
    
    
    40,643TOTAL
    
    $
    385,641
    
    $
    283,350
    
    $
    121,927


The
original convertible note holders waived any or all potential liquidated
damages. The terms on the assigned notes are identical to the original notes.
Additionally, the original detachable warrants issued in conjunction with the
debentures were cancelled.

F-27

**11.****Notes
Payable**

The
current note payable of $49,000 at December 31, 2004, is a note payable to a
shareholder and bears a fixed interest rate of $6,000. The note is due on
January 2, 2005. In February 2005, the holder of the note extended the terms of
the notes ten months and adjusted the interest rate to 10% per
annum.



**12.****Gain
on Extinguishment of Notes Payable**

In
September 2004, the Company wrote off 10% notes payable with a principal balance
of $71,000 and related interest of $33,192. The note holders are not currently
in business. These notes were over five years old and the Company has not been
contacted by the note holders regarding payment for over five years. The Company
engaged its counsel to contact these note holders to resolve these outstanding
amounts. Through these efforts to contact the note holders, the Company learned
that the note holder had filed for bankruptcy, and is no longer in business. The
Company’s counsel further advised that the Company is no longer liable for these
amounts. In December 2004, the holder of an 8% note payable with a principal
balance of $26,650 and related interest of $6,307 forgave the debt. Thus, the
Company recorded a gain of $137,149 on the extinguishment of these notes and
their related interest, and the gain is included in the Statement of Operations
for year ended December 31, 2004.



**13.****Income
Taxes**

Significant
components of the provision for taxes based on income for the years ended
December 31 are as follows:

2004
    
    2003CurrentFederal
    $
    -
    
    $
    -State
    
    3,404
    
    
    1,6001,600DeferredFederal
    
    -
    
    
    -State
    
    -
    
    
    -Provision
      for income taxes
    $
    3,404
    
    $
    1,600


F-28

**13.****Income
Taxes (continued)**

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:

2004
    
    2003Income
      tax provisions (benefit) computedat
      federal statutory rate
    (35.00%)
    
    (35.00%)State
      taxes
    (3.00%)
    
    (5.40%)Effect
      of discontinued operations
    (16.80%)
    
    (6.70%)Reduction
      of NOL carryforward relatingrelating
      to discontinued operations
    60.30%
    
    0.00%Change
      in the valuation allowance
    (5.30%)
    
    47.30%Total
    0.20%
    
    0.20%


Significant
components of the Company's deferred tax assets and liabilities for income taxes
consist of the following:

2004
    
    2003Deferred
      tax assetNet
      operating loss carryforwards
    $
    8,899,277
    
    $
    10,411,896Impairment
      of assets
    
    -
    
    
    120,000Options/warrants
    
    -
    
    
    45,217Discontinued
      operations
    
    -
    
    
    200,0008,899,277
    
    
    10,777,113Deferred
      tax liabilityState
      income taxes
    
    -
    
    
    (1,799,127)Net
      deferred tax asset
    
    8,899,277
    
    
    8,977,986Valuation
      allowance
    
    (8,899,277)
    
    
    (8,977,986)$
    -
    
    $
    -

At
December 31, 2004, the Company has available approximately $8,364,701 and
$1,078,727 in Federal and State net operating loss carryforwards available to
offset future federal and state income taxes, respectively, which begin to
expire in 2022.

F-29

**13.****Income
Taxes (continued)**

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.



**14.****Commitments
and Contingencies**

Litigation

*Department
of Health Services*

The
Company is a provider of services under California’s Medicaid program
(“Medi-Cal”), which is administered by the Department of Health Services
(“DHS”). DHS served notice to the Company that the Company received overpayment
of claims submitted by the Company for certain drugs, based on alleged
violations of the California Code of Regulations. The Company has provided
documentary evidence to contest and rebut DHS’s allegations and received an
extension to provide evidence to the contrary. In December 2002, DHS informed
the Company that it was suspending Classic Care’s Medi-Cal license, and that it
was withholding all further payments until its investigation is complete.
Classic Care could not successfully operate without a Medi-Cal license. Thus,
the Company has decided to cease operations of Classic Care. Management has
fully reserved the accounts receivable balance regarding these
allegations.

Additionally,
DHS has alleged that Classic Care was overpaid in 1998, 1999 and 2000, and has
requested a refund. The Company believes that all reimbursements received were
appropriate, and management believes that it does not have a liability to the
DHS.

Except as
otherwise specifically indicated above, management believes that the Company
does not have any material liability for any lawsuits, settlements, judgments,
or fees of defense counsel which have not been paid or accrued as of December
31, 2004. However, there can be no assurance that the Company will prevail in
the above proceedings. In addition, the Company may be required to continue to
defend it resulting in substantial additional expense. In the event the Company
is unable to pay the defense costs associated with the foregoing, an unfavorable
settlement or judgment could be awarded against the Company, which might have a
material adverse effect upon the Company.

Kaire
believes that it does not have any liability in this matter and has not provided
any reserve for this matter. The basis for this belief is the following: 1) the
California Department of Health Services (“DHS”) claim is directed to Classic
Care Pharmacy which was owned by Classic Care, Inc. 2) Classic Care Inc. is a
separate legal entity and was operated by the prior owners, whom Kaire believes
perpetrated the actions leading to the alleged claims, 3) Kaire was not involved
nor was Kaire aware of the alleged overpayment to Classic Care Inc., 4) the
alleged claim includes a period of time before Kaire was involved with Classic
Care, Inc. thus precluding Kaire of any claim in that time period and 5) Kaire
did not benefit in any way from the alleged overpayment.

The DHS
estimates the claim at around $1,566,396. An estimate of how much the claim
would relate to Classic Care, Inc. cannot be made since the alleged claim
includes a time period that begins over a year prior to Kaire’s involvement with
Classic Care, Inc. and that information is not available to Kaire.

F-30

**14.****Commitments
and Contingencies**

Litigation
(continued)

*Company
Is in Dispute with a Vendor*

The
Company is in dispute over the amounts due this vendor for purchases of
pharmaceuticals in 2001 and 2002 by its subsidiary, Classic Care, in the
approximate amount of $550,000. The Vendor has filed a lawsuit naming the
Company as a co-defendant. The Company with the advice of its counsel has
evaluated these claims and vigorously defended itself in this litigation.

On
December 30, 2004 a settlement was reached where Kaire is obligated to pay the
vendor $50,000. Kaire’s payment obligation will mature upon court approval of
the settlement, with $10,000 due immediately at that time and the balance paid
based on 12 monthly installments of $3,077.06 (which includes interest of
7.50%). The settlement was executed by the parties at the end of April 2005.
Kaire expects to obtain court approval within approximately sixty days of the
time of this filing.


*McKesson
Medical - Surgical Inc. v. Effective Health*

On
January 20, 2005, McKesson Medical-Surgical, Inc. (“Plaintiff”) filed a
complaint against Effective Health, Inc., a subsidiary of Kaire, for failure to
pay the principal sum of $17,467 for goods and/or services. The Company has
expressly denied any liability although the Company’s attorney has not yet
undertaken a full analysis of the Plaintiff’s claims at this early stage of the
litigation.


Leases

*Operating
leases*

In June
of 2002, the Company leased a 7,334-square-foot building located at 8135
Clybourne Ave, Sun Valley, CA 91352, to serve as their corporate headquarters
and storage facility. The lease is for a period of two years, ending June 2004,
with monthly lease payments of $3,420. The Company subleases on a month-to-month
basis approximately one half of the facility to Digital Media Group, Inc, a
related company that is owned by the Company’s CEO and Chairman, Steve Westlund.
The Company vacated this facility in March 2004.

In
January 2003, Kaire entered into an operating lease agreement for the pharmacy
in Fillmore, California which serves as its corporate headquarters. At the time
the pharmacy facility was approximately 843 square feet with a monthly payment
of $1,170. In May 2004 Kaire expanded its space to approximately 1,115 square
feet, with a monthly payment of $1,520 and in March 2005 Kaire expanded its
space to approximately 1,800 square feet and currently pay $2,245 a month. The
lease was to continue through the original initial lease term of five years.
Kaire has options to renew the lease for two five-year periods and to purchase
the facility at its estimated fair market value at any time during the lease
term. However, Santa Paula Memorial Hospital, the holder of the master lease,
filed for chapter 11 Bankruptcy protection and the court rejected including the
lease in bankruptcy. The property owners have approached Kaire with a proposal
to takeover the master lease. However, Kaire has not made a decision concerning
the master lease. Kaire also has not received a new lease with the increase
lease payments. Kaire is assuming the lease is now a month to month
lease.

F-31

**14.****Commitments
and Contingencies (continued)**

Leases
(continued)

*Operating
leases (continued)*

The
Company leased an automobile under a 39-month operating lease that was scheduled
to expire in February 2005 with monthly payments of $415. The automobile was
returned and the lease cancelled in April 2003.

Future
minimum lease payments due under non-cancelable operating leases consist of the
following as of December 31, 2004:
2005
    $
    26,9402006
    
    -2007
    
    -2008
    
    -2009
      and later
    
    -Future
      minimum lease payments
    $
    26,940

Rent
expense for the years ended December 31, 2004 and 2003 was $35,150 and $51,548,
respectively.


Employment
Agreements

*Chief
Executive Officer Compensation*

On April
1, 2000, Mr. Westlund signed a three-year employment agreement. The contract
calls for Mr. Westlund to be paid a base salary of $8,333 per month for the
first year of the term. Mr. Westlund’s base salary was to increase 15% per year
for each of the second and third years per this agreement.

Although
Mr. Westlund’s employment agreement states that his salary is to be $8,333 per
month, his actual cash pay has been $20,000 and $4,000 for the years ended
December 31, 2004 and 2003, respectively. Mr. Westlund is entitled to be paid
the balance of his monthly compensation in either cash or equity. Additionally,
Mr. Westlund has been granted an option to purchase up to 30,000 shares of Kaire
common stock over the next 5 years at an option price of $0.05 per share. To
date, Mr. Westlund has exercised options to purchase 29,833 shares of common
stock during the year ended December 31, 2003, and the remaining options expired
in 2004.

During
2004 Mr. Westlund received 2,000,000 shares of the Company’s common stock in
lieu of $370,000 of accrued and current compensation due him under the above
compensation agreement. The Company had no accrued compensation due to Mr.
Westlund as of December 31, 2004.

On
October 17, 2003, Mr. Westlund was issued 375,000 shares of the Company’s common
stock in lieu of $22,500 of the total amount due to him under the above
compensation agreement. The Company has accrued amounts due to Mr. Westlund of
$317,980 as of December 31, 2003.

F-32

**14.****Commitments
and Contingencies (continued)**

Employment
Agreements (continued)

*Chief
Executive Officer Compensation (continued)*

Subsequent
to December 31, 2004, the Company agreed to a new three year agreement with Mr.
Westlund. The agreement calls for a monthly salary of $8,333.33 per month, with
annual increases equaling 15% of the base salary. In addition, he will receive a
5 year option to purchase 12 million shares of the Company’s common stock, at an
option price of $0.05 per share. This new agreement was effective April 5,
2005.


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, accounting services, legal services, and professional
services rendered in connection with the Company’s acquisition efforts. The
Company has no amounts due under these agreements as of December 31, 2004. The
Company had accrued $60,000 for amounts due under such agreements as of December
31, 2003.



**15.****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:


2004
    
    2003Net
      lossAs
      reported
    $
    (842,968)
    
    $
    (1,285,847)Pro
      forma
    $
    (842,968)
    
    $
    (1,285,847)Basic
      and diluted loss per common shareAs
      reported
    $
    (0.06)
    
    $
    (0.29)Pro
      forma
    $
    (0.06)
    
    $
    (0.29)


The
Company did not grant any options to employees in 2004 and 2003. Options and
warrants 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 2004 and 2003, the Company granted warrants convertible into
the Company’s common stock pursuant to the issuance of convertible debentures.

F-33

**15.****Stock
Options and Warrants (continued)**

The fair
value of these 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, 2004; dividend yield of 0%;
expected volatility of 250%; risk-free interest rate of 5.5%; and expected life
of 5 years. December 31, 2003; dividend yield of 0%; expected volatility of
250%; risk-free interest rate of 5.5%; and expected life of 3 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 and warrants granted during the year ended December 31, 2004 and
2003, were $0.12 and $0.06, respectively.

No stock
options were outstanding or exercisable at December 31, 2004.

The
following table summarizes information with respect to stock warrants
outstanding and exercisable at December 31, 2004:


Warrants
      Outstanding
    
    Warrants
      ExercisableRange
      of Exercise
      Prices
    
    Number
      Outstanding
      as of December 31, 2004
    
    Weighted
      Average
      Remaining
      Contractual Life
    
    Weighted
      Average
      Exercise
      Price
    
    Number
      Exercisable as of December 31, 2004
    
    Weighted
      Average
      Exercise
      Price$0.17
    
    4,444,444
    
    4.4
    
    $
    0.17
    
    4,444,444
    
    $
    0.174,444,444
    
    4.4
    
    $
    0.17
    
    4,444,444
    
    $
    0.17

The
following tables summarize information with respect to stock options and
warrants outstanding and exercisable at December 31, 2003:

Options
      Outstanding
    
    Options
      ExercisableRange
      of Exercise
      Prices
    
    Number
      Outstanding
      as of December 31, 2003
    
    Weighted
      Average
      Remaining
      Contractual Life
    
    Weighted
      Average
      Exercise
      Price
    
    Number
      Exercisable as of December 31, 2003
    
    Weighted
      Average
      Exercise
      Price$10.00
    
    10,167
    
    0.46
    
    $
    $10.00
    
    10,167
    
    $
    $10.0010,167
    
    0.46
    
    $
    $10.00
    
    10,167
    
    $
    $10.00


F-34

**15.****Stock
Options and Warrants (continued)**

Warrants
      Outstanding
    
    Warrants
      ExercisableRange
      of Exercise
      Prices
    
    Number
      Outstanding
      as of December 31, 2003
    
    Weighted
      Average
      Remaining
      Contractual Life
    
    Weighted
      Average
      Exercise
      Price
    
    Number
      Exercisable as of December 31, 2003
    
    Weighted
      Average
      Exercise
      Price$0.06
    
    2,200,000
    
    2.91
    
    $
    0.06
    
    2,200,000
    
    $
    0.062,200,000
    
    2.91
    
    $
    0.06
    
    2,200,000
    
    $
    0.06


The
following summarizes the Company's stock option and warrants
activity:

Warrants
      And
      Stock
      Options
      Outstanding
    
    Weighted
      Average
      Exercise
      PriceOutstanding
      December 31, 2002
    37,667
    
    $
    10.00Granted
    2,200,000
    
    $
    0.06Exercised
    -
    
    $
    -Expired/Cancelled
    (27,500)
    
    $
    16.00Outstanding
      December 31, 2003
    2,210,167
    
    $
    0.06Granted
    4,444,444
    
    $
    0.17Exercised
    (2,200,000)
    
    $
    0.06Expired/Cancelled
    (10,167)
    
    $
    10.00Outstanding
      December 31, 2004
    4,444,444
    
    $
    0.17


The
Company has and 4,444,444 warrants outstanding as of December 31, 2004 and
2,200,000 as of December 31, 2003. The exercise price of the outstanding
warrants as of December 31, 2004 is $0.17. The outstanding warrants have a
clause that causes the exercise price can be adjusted down by the Company upon
certain company actions. The warrants expire 5 years from the original date of
grant. The Company has not repriced any warrants as of December 31,
2004.

F-35

**16.****Earnings
per Share**

Earnings
per share have been calculated using the weighted average number of shares
outstanding during each period. As of December 31, 2004, potentially dilutive
securities consist of convertible debentures convertible into 44,219,200 common
shares and warrants convertible into 4,444,444 shares. Earnings per
share-dilutive does not include the effect of potentially dilutive securities
for the years ended December 31, 2004 and 2003 respectively. The loss from
operations and the net loss for the years ended December 31, 2004 and 2003 make
these securities anti-dilutive.

Effective
August 25, 2003, the Company concluded a reverse split at a ratio of 1-for-200.
All EPS calculations and shares issued were retroactively adjusted to reflect
the reverse stock split.



**17.****Discontinued
Operations - Classic Care, Inc.**

In
December 2002, the Company decided to voluntarily dissolve Classic Care, Inc.
dba Classic Care Pharmacy as a result of sanctions by the pharmacy management of
the Department of Health Services and the subsequent suspension of the Medi-Cal
license. The Company ceased all operations of Classic Care effective January
2003 and the disposal date of Classic Care was May 2003. Classic Care’s sales
for the years ended December 31, 2004, and December 31, 2003, were none and
$8,266, respectively. The results of Classic Care’s operations have been
reported separately as discontinued operations in the Statements of
Operations.

In
January 2003, after a failed effort to rebuild Classic Care Pharmacy, all
operations at Classic Care Pharmacy ceased and Classic Care, Inc was dissolved.
Additionally, the logistical issues created by moving the pharmacy operations to
Fillmore, California, made it difficult to provide the level of personal
attention required to service individual HIV clients in the Health Advocate HIV
program. The combination of a declining HIV client base due to the logistical
problems of providing the level of personal attention required to service each
HIV client (i.e. clients were transferring their business to a more conveniently
located pharmacy) and small margins lead to the decision to phase out the Health
Advocate HIV program.

Thenetassets
(liabilities)ofthediscontinuedoperationshavebeenrecordedattheirestimatednetrealizablevalueunderthecaption“Netassets
(liabilities)ofdiscontinuedoperations
- Classic Care”intheaccompanyingBalanceSheetsatDecember
31, 2004 and 2003,andconsistofthefollowing:

2004
    
    2003Non-trade
      receivable
    
    -
    
    
    415,157Total
      Assets
    $
    -
    
    $
    415,157Accounts
      payable
    
    (131,845)
    
    
    (685,050)Accrued
      liabilities
    
    (13,766)
    
    
    (13,766)Reserve
      for litigation
    
    -
    
    
    (300,000)Total
      liabilities
    
    (145,611)
    
    
    (998,816)Net
      assets (liabilities) of discontinued operations
    $
    (145,611)
    
    $
    (583,659)


F-36

**17.****Discontinued
Operations - Classic Care, Inc. (continued)**

The
following is a breakdown of the operations of Classic Care discontinued
operations for the years ended December 31, 2004 and 2003:

2004
    
    2003Revenues
    $
    -
    
    $
    8,266Cost
      of sales
    
    -
    
    
    (7,626)Operating
      expenses
    
    -
    
    
    (21,202)Gain
      on settlement
    
    438,048
    
    
    -Other
      income
    
    -
    
    
    78,668Income
      tax
    
    -
    
    
    (800)Net
      income
    
    438,048
    
    
    77,868Disposal
    
    -
    
    
    (41,993)Net
    $
    438,048
    
    $
    15,313



**18.****Acquisition
and Disposition of Entremetrix, Inc.**

Acquisition
of Entremetrix, Inc*.*

In March
2003, the Company through its subsidiary completed the acquisition of all the
outstanding common shares of Entremetrix, Inc., a Nevada corporation, for
$2,750,000. The agreed purchase price consists of (i) a 4% promissory note in
the amount of $2.5 million due four years after closing, and (ii) the issuance
of 1,250,000 shares of the Company’s common stock having a market value of
approximately $250,000.

Entremetrix
is a Southern California-based company, and is a national provider of
administrative employer and financial support services to small businesses
primarily operating in the medical, life sciences and high-technology
industries. Additionally, Entremetrix provides outsourced human resources and
financial support staff. The acquisition will be accounted for under the
purchase method, whereby the purchase price will be allocated to the underlying
assets and liabilities based on their estimated fair values. The resulting
goodwill from this transaction is currently estimated at $2,906,985. Entremetrix
commenced operations in July 2002.

F-37

**18.****Acquisition
and Disposition of Entremetrix, Inc. (continued)**

Acquisition
of Entremetrix, Inc. (continued)

The
following table presents the allocation of the acquisition cost, including
professional fees and other related acquisition costs, to the assets acquired
and liabilities assumed:

Cash
      and cash equivalents
    $
    27,576Accounts
      receivable
    
    958Other
      current assets
    
    134,608Property
      and equipment
    
    51,323Goodwill
    
    2,906,985Other
      non-current assets
    
    645Total
      assets
    $
    3,122,095Accounts
      payable and accrued expenses
    $
    262,620Notes
      payable
    
    109,475Total
      liabilities
    $
    372,095Total
      acquisition cost
    $
    2,750,000


The pro
forma consolidated results of operations have not been presented as if the
acquisition of Entremetrix, Inc. had occurred at January 1, 2002, due to the
sale of Entremetrix back to its original shareholder in February 2004. The pro
forma information is not meaningful due to sale of Entremetrix, and the Company
not pursuing any future business opportunities in the professional employment
line.


Disposition
of Entremetrix, Inc.

In
February 2004, the Company signed a definitive agreement to sell Entremetrix,
Inc., (Entremetrix), its professional employment organization business unit,
back to its original shareholder. The Company had purchased Entremetrix in March
2003 for common stock and a note payable to the shareholder of Entremetrix. The
results of operations of Entremetrix have been reported separately as
discontinued operations. The transaction was in essence a recession of the
original purchase. The Company received back the shares, 1,250,000 shares of its
common stock, it had issued to the original shareholder and the note payable to
the shareholder in the amount of $2,500,000 plus any accrued interest to date
was cancelled. Entremetrix’s revenues were $399,643 for the period starting
March 18, 2003 (acquisition date) to December 31, 2003.

F-38

**18.****Acquisition
and Disposition of Entremetrix, Inc. (continued)**

Disposition
of Entremetrix, Inc. (continued)

Forfinancialreportingpurposes,theassetsandliabilitiesofEntremetrix
have been classified in the accompanying Balance SheetsasofDecember
31, 2004 and 2003,under“Assets
ofdiscontinuedoperationsheldforsale”andcomprisethefollowing:

2004
    
    2003Assets:Accounts
      receivable
    $
    -
    
    $
    60,557Other
      current assets
    
    -
    
    
    70,428Property
      and equipment, net
    
    -
    
    
    48,435Other
      assets
    
    -
    
    
    2,946,784Total
      assets
    $
    -
    
    $
    3,126,204Liabilities:Accounts
      payable
    $
    -
    
    $
    165,837Accrued
      liabilities
    
    -
    
    
    238,796Other
      non-current liabilities
    
    -
    
    
    2,692,332Total
      liabilities
    $
    -
    
    $
    3,096,965Net
      assets of discontinued operationsheld
      for sale
    $
    -
    
    $
    29,239

The
following is a breakdown of the operations of Entremetrix discontinued
operations for the years ended December 31, 2004 and 2003:

2004
    
    2003Revenues
    $
    25,860
    
    $
    399,643Operating
      expenses
    
    (79,796)
    
    
    (570,228)Other
      expense
    
    (1,351)
    
    
    (67,670)Income
      tax
    
    -
    
    
    (800)Net
      loss
    
    (55,287)
    
    
    (239,055)Disposal
    
    -
    
    
    -Net
    $
    (55,287)
    
    $
    (239,055)



**19.****Subsequent
Events**

Issuance
of Common Stock for Services

On
February 3, 2005 the Company issued 3,000,000 shares of common stock to
employees and consultants, with a market value of $120,000, for consulting and
legal services provided to the Company.

F-39

**19.****Subsequent
Events (continued)**

Issuance
of Convertible Security

In March
29, 2005, Kaire issued a $125,000, 8% interest per annum, two year convertible
note to the Longview Fund LP. The Conversion Price per share shall be the lesser
of (i) $.04 or (ii) eighty-five (85%) of the average of the closing bid prices
for the fifteen (15) trading days prior to but not including the conversion date
for the common stock. In addition Longview was issued a class A warrant for the
purchase of 694,444 shares of the common stock at a per share purchase price of
$0.042, and a class B warrant for the purchase of 3,000,000 shares of the common
stock at a per share purchase price of $0.04

Settlement

On
December 30, 2004, a settlement was reached where Kaire is obligated to pay the
plaintiff $50,000. Kaire’s payment obligation will mature upon court approval of
the settlement, with $10,000 due immediately at that time and the balance paid
based on 12 monthly installments of $3,077.06 (which includes interest of
7.50%). The settlement was executed by the parties at the end of Aril 2005.
Kaire expects to obtain court approval within approximately sixty days of the
time of this filing.


Employment
Agreement

On April
5, 2005, the Company agreed to a new three year agreement with Mr. Westlund. The
agreement calls for a monthly salary of $8,333.33 per month, with annual
increases equaling 15% of the base salary. In addition, he will receive a 5 year
option to purchase 12 million shares of the Company’s common stock, at an option
price of $0.05 per share.

F-40