UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark one)

|                                                               |                                                                      
|-------------------------------------------------------------- | ---------------------------------------------------------------------
|X                                                              | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
|                                                               | ACT OF 1934                                                          
|For the quarterly period ended: September 30, 2007            
|                                                               |                                                                      
|                                                               | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT      
|For the transition period from: _____________ to _____________



XenaCare Holdings, Inc.

(Exact name of small business issuer as specified in its charter)



|                             |              |                    
|---------------------------- | ------------ | -------------------
|Florida                      | 2836         | 20-3075747         
|(State or Other Jurisdiction | (Commission  | (I.R.S. Employer   
|of Incorporation)            | File Number) | Identification No.)



14000 Military Trail, Suite 104

Delray Beach, Florida 33484

(Address of Principal Executive Office) (Zip Code)



(561) 496-6676

(Issuers telephone number, including area code)



3275 W. Hillsboro Boulevard, Suite 300

Deerfield Beach, Florida 33442

(Former name, former address and former fiscal year, if changed since last report)



|                                                                                                                                                                                                                                                                                                                           |   |     |   |   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --- | - | --
|Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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.
|                                                                                                                                                                                                                                                                                                                           | X | Yes |   | No
|                                                                                                                                                                                                                                                                                                                          
|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                           |   | Yes | X | No
|                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                          
|APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date. 23,597,537 Shares of $0.0001 par value common stock at November 10, 2007.                                                                                
|Transitional Small Business Disclosure Format (Check one):                                                                                                                                                                                                                                                                 |   | Yes | X | No







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XENACARE HOLDINGS, INC. AND SUBSIDIARIES



INDEX



|                                                                                               |     
|---------------------------------------------------------------------------------------------- | ----
|                                                                                               | Page
|PART I  FINANCIAL INFORMATION                                                                 |     
|                                                                                               |     
|ITEM 1. FINANCIAL STATEMENTS                                                                   | 3   
|CONSOLIDATED BALANCE SHEET                                                                     | 3   
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                          | 4   
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                          | 5   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                     | 6   
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS | 10  
|ITEM 3. CONTROLS AND PROCEDURES                                                                | 21  
|                                                                                               |     
|PART II  OTHER INFORMATION                                                                    |     
|                                                                                               |     
|ITEM 1. LEGAL PROCEEDINGS                                                                      | 22  
|ITEM 5. OTHER INFORMATION                                                                      | 22  
|ITEM 6. EXHIBITS                                                                               | 22  
|SIGNATURES                                                                                     | 23  







2



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PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

XenaCare Holdings, Inc.

Consolidated Balance Sheets



|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | ----------------- | - | ---------- | -
|                                                                                                                                                                                  |  | September 30,
2007 |            | December 31,
2006 |  
|                                                                                                                                                                                  |  | (Unaudited)        |            | (Audited)         |  
|ASSETS                                                                                                                                                                            |  |                    |            |                   |   |            |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|Current Assets                                                                                                                                                                    |  |                    |            |                   |   |            |  
|Cash                                                                                                                                                                              |  | $                  | 28,888     |                   | $ | 44,179     |  
|Inventory                                                                                                                                                                         |  |                    | 377,540    |                   |   | 295,403    |  
|Prepaid expenses and other current assets                                                                                                                                         |  |                    | 127,350    |                   |   |           |  
|Total Current Assets                                                                                                                                                              |  |                    | 533,778    |                   |   | 339,582    |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|Office Furniture and Equipment, net                                                                                                                                               |  |                    | 150,424    |                   |   | 172,396    |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|TOTAL ASSETS                                                                                                                                                                      |  | $                  | 684,202    |                   | $ | 511,978    |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                              |  |                    |            |                   |   |            |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|Current Liabilities                                                                                                                                                               |  |                    |            |                   |   |            |  
|Accounts payable and accrued expenses                                                                                                                                             |  | $                  | 703,413    |                   | $ | 41,205     |  
|Total Current Liabilities                                                                                                                                                         |  |                    | 703,413    |                   |   | 41,205     |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|Notes payable - non-current                                                                                                                                                       |  |                    | 328,846    |                   |   |           |  
|Other liabilities                                                                                                                                                                 |  |                    | 659,836    |                   |   |           |  
|TOTAL LIABILITIES                                                                                                                                                                 |  |                    | 1,692,095  |                   |   | 41,205     |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                     |  |                    |            |                   |   |            |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|Shareholder's Equity (Deficit)                                                                                                                                                    |  |                    |            |                   |   |            |  
|Preferred stock, blank check, 5,000,000 shares, authorized, none issued                                                                                                           |  |                    |            |                   |   |            |  
|Common stock, $0.001 par value, 45,000,000 shares authorized, 
23,497,537 and 22,180,409 shares issued and outstanding at 
September 30, 2007 and December 31, 2006, respectively |  |                    | 23,497     |                   |   | 22,180     |  
|Additional paid-in-capital                                                                                                                                                        |  |                    | 4,735,848  |                   |   | 3,023,658  |  
|Stock subscription receivable                                                                                                                                                     |  |                    | (30,000    | )                 |   | (30,000    | )
|Accumulated deficit                                                                                                                                                               |  |                    | (5,737,238 | )                 |   | (2,545,065 | )
|Total Shareholders' Equity (Deficit)                                                                                                                                              |  |                    | (1,007,893 | )                 |   | 470,773    |  
|                                                                                                                                                                                  |  |                    |            |                   |   |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                        |  | $                  | 684,202    |                   | $ | 511,978    |  



See accompanying notes to consolidated financial statements



3



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XenaCare Holdings, Inc.

Consolidated Statements of Operations



|                                             |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|-------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | - | ---------- | ----------- |  | - | ----------- | - |  | - | ---------- | -
|                                             |  | Three Months Ended
September 30, |            |   | Nine Months Ended
September 30, |  
|                                             |  | 2007                             |            |   | 2006                            |   |            | 2007        |  |   | 2006        |  
|                                             |  | (Unaudited)                      |            |   | (Unaudited)                     |   |            | (Unaudited) |  |   | (Unaudited) |  
|Revenue:                                     |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Product sales                                |  | $                                | 30,079     |   |                                 | $ | 42,346     |             |  | $ | 88,637      |   |  | $ | 203,290    |  
|Service revenue                              |  |                                  |           |   |                                 |   | 36,521     |             |  |   |            |   |  |   | 36,521     |  
|Other fee revenue                            |  |                                  |           |   |                                 |   | 3,378      |             |  |   |            |   |  |   | 3,378      |  
|Total revenue                                |  |                                  | 30,079     |   |                                 |   | 82,245     |             |  |   | 88,637      |   |  |   | 243,189    |  
|                                             |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Cost of revenue                              |  |                                  | 18,551     |   |                                 |   | 13,069     |             |  |   | 56,614      |   |  |   | 99,330     |  
|Gross profit                                 |  |                                  | 11,528     |   |                                 |   | 69,176     |             |  |   | 32,023      |   |  |   | 143,859    |  
|                                             |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Operating costs and expenses:                |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Selling and marketing                        |  |                                  | 94,570     |   |                                 |   | 620,058    |             |  |   | 501,837     |   |  |   | 1,789,515  |  
|General and administrative                   |  |                                  | 641,120    |   |                                 |   | 292,179    |             |  |   | 1,008,704   |   |  |   | 555,427    |  
|Total operating costs and expenses           |  |                                  | 735,690    |   |                                 |   | 912,237    |             |  |   | 1,510,541   |   |  |   | 2,344,942  |  
|                                             |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Loss from operations                         |  |                                  | (724,162   | ) |                                 |   | (843,062   | )           |  |   | (1,478,519  | ) |  |   | (2,201,084 | )
|                                             |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Other income (expense)                       |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Interest expense                             |  |                                  |           |   |                                 |   |           |             |  |   |            |   |  |   |           |  
|Other income                                 |  |                                  |           |   |                                 |   |           |             |  |   | 1,081       |   |  |   |           |  
|Other expenses                               |  |                                  |           |   |                                 |   |           |             |  |   | (1,228      | ) |  |   | (10,442    | )
|Total other income (expense)                 |  |                                  |           |   |                                 |   |           |             |  |   | (147        | ) |  |   | (10,442    | )
|                                             |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Net Loss                                     |  | $                                | (724,162   | ) |                                 | $ | (843,062   | )           |  | $ | (1,478,666  | ) |  | $ | (2,211,526 | )
|                                             |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|                                             |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Weighted average shares - 
basic and diluted |  |                                  | 23,282,192 |   |                                 |   | 21,497,494 |             |  |   | 22,731,301  |   |  |   | 21,497,494 |  
|Basic and diluted loss per share             |  | $                                | (0.03      | ) |                                 | $ | (0.04      | )           |  | $ | (0.07       | ) |  | $ | (0.10      | )



See accompanying notes to consolidated financial statements





4



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XenaCare Holdings, Inc.

Consolidated Statements of Cash Flows



|                                                                            |  |                                 |            |             |   |            |  
|--------------------------------------------------------------------------- |  | ------------------------------- | ---------- | ----------- | - | ---------- | -
|                                                                            |  | Nine Months Ended
September 30, |           
|                                                                            |  | 2007                            |            | 2006        |  
|                                                                            |  | (Unaudited)                     |            | (Unaudited) |  
|Cash Flows from Operating Activities:                                       |  |                                 |            |             |   |            |  
|Net Loss                                                                    |  | $                               | (1,018,503 | )           | $ | (2,211,524 | )
|Adjustments to reconcile net loss to net
cash used in operating activities: |  |                                 |            |             |   |            |  
|Depreciation and amortization                                               |  |                                 | 27,264     |             |   | 26,452     |  
|Stock issued for services and settlements                                   |  |                                 | (460,163   | )           |   | 500,000    |  
|Changes in operating assets and liabilities:                                |  |                                 |            |             |   |            |  
|Accounts receivable                                                         |  |                                 |           |             |   | (308,955   | )
|Inventory                                                                   |  |                                 | (82,137    | )           |   | (133,099   | )
|Prepaid expenses and other current assets                                   |  |                                 | (127,350   | )           |   | 57,386     |  
|Accounts payable and accrued expenses                                       |  |                                 | 662,207    |             |   | (38,017    | )
|Net cash used in operating activities                                       |  |                                 | (998,681   | )           |   | (2,107,757 | )
|                                                                            |  |                                 |            |             |   |            |  
|Cash Flows from Investing Activities:                                       |  |                                 |            |             |   |            |  
|Purchase of office furniture and equipment                                  |  |                                 | (5,292     | )           |   | (11,363    | )
|Proceeds from deposit return                                                |  |                                 |           |             |   | 4,737      |  
|Net cash provided by (used in) investing activities                         |  |                                 | (5,292     | )           |   | (6,626     | )
|                                                                            |  |                                 |            |             |   |            |  
|Cash Flows from Financing Activities:                                       |  |                                 |            |             |   |            |  
|Proceeds from notes payable                                                 |  |                                 | 328,846    |             |   | (500,000   | )
|Advances from (Payments to) related parties                                 |  |                                 | 659,836    |             |   | (1,395     | )
|Capital contributions                                                       |  |                                 |           |             |   | 2,986,383  |  
|Net cash provided by financing activities                                   |  |                                 | 988,682    |             |   | 2,484,988  |  
|                                                                            |  |                                 |            |             |   |            |  
|                                                                            |  |                                 |            |             |   |            |  
|Increase (Decrease) in Cash                                                 |  |                                 | (15,292    | )           |   | 370,605    |  
|Cash, Beginning of Period                                                   |  |                                 | 44,179     |             |   | 950        |  
|                                                                            |  |                                 |            |             |   |            |  
|Cash, End of Period                                                         |  | $                               | 28,887     |             | $ | 371,555    |  
|                                                                            |  |                                 |            |             |   |            |  
|Supplemental Information:                                                   |  |                                 |            |             |   |            |  
|Cash paid for interest                                                      |  | $                               |           |             | $ |           |  
|Cash paid for taxes                                                         |  | $                               |           |             | $ |           |  



See accompanying notes to consolidated financial statements







5



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XENACARE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)





NOTE 1.  ORGANIZATION AND NATURE OF BUSINESS

Organization and Nature of Business

XenaCare Holdings, Inc. (the Company, XC Holdings, we, us or our) was organized under the laws of Florida in June 2005 to formulate, market and distribute a line of clinical and life style performance nutrition supplement products (NSPs).

Our XenaCare Clinical division (i) educates doctors and other healthcare professionals about certain of our NSPs and facilitates the sale and distribution of these NSPs from doctors offices and (ii) has commenced the formulation and brand building of a line of NSPs for the replenishment of nutrients lost due to pharmaceutical medications, which will be sold through mass media buys (radio and television advertising), web sales and other channels of distribution.

Our XenaCare Performance division (i) is involved in the formulation of a line of NSPs (gels and creams) for the personal performance market to be sold under the Touch n Tingle brand and (ii) the formulation of a line of NSPs for the energy/lifestyle performance market to be sold through mass media buys (radio and television advertising), web sales and other channels of distribution.

Our most recent product addition, Sun Pill, is directed to the energy/lifestyle performance market. Sun Pill is formulated to protect the skin when exposed to damaging ultraviolet rays. We have entered into agreements for manufacturing, packaging and distribution and fulfillment of our products. We have also engaged consultants to assist us in marketing, web hosting and the development and production of infomercials. We anticipate generating sales through our websites and from infomercials in the fourth quarter of 2007.

History of the Company

While the Company was organized in 2005, its predecessor, XenaCare LLC was organized in 2001 following the formulation of its concept and alpha testing by its founder, Dr. Alan Xenakis, for the limited purpose of the education, sale and distribution of NSPs at doctors offices. In June 2005, the Company was incorporated by Messrs. Bobby Story, Gary Spaniak, Dr. Xenakis and Frank Rizzo to formulate personal performance and lifestyle performance products. Thereafter, the Company entered into an exchange agreement with certain members of XenaCare LLC and such members exchanged their interest in XenaCare LLC for an aggregate of 800,000 shares of XenaCare Holdings, Inc. common stock, which represented a value of $1,600,000. All remaining shares of XenaCare LLC that were not exchanged for shares of XenaCare Holdings, Inc. were retired. For accounting purposes, the consummation of these actions resulted in an exchange of equity interest between entities under common control with XenaCare LLC as the accounting survivor and surviving business entity and the Company as the surviving legal entity.

Operations have traditionally focused on providing a small but targeted platform of poly-formulas to the patient that address key multi-factors in disease processes such as atherosclerosis and diabetes (as opposed to the single target restrictions placed on prescription drugs that must focus on one disease factor at a time such as an HMG reductase inhibitor (Statin) that does not address the multi factors of atherosclerosis). The Companys historical lines of NSPs are: XenaCor, XenaZymePlus and XenaTri.

Commencing in mid 2005 the Company expanded focus and began to formulate NSPs for personal performance and lifestyle performance products. The Company also developed new distribution channels for the historical NSPs, including web site and infomercials. The Company has also formulated a line of body replenishment NSPs, which are designed to eliminate prescription induced nutrient depletion. To replace these nutrients, NSPs have been formulated, which the Company believes will combat the depletion effects of commonly prescribed drugs. Additionally, the Company has added a nutritional supplement (patent pending) that defends the skin from the damaging effects of the sun, and a patented process for an algae-based Omega 3 fatty acid food additive that is tasteless and odorless. The Company has the worldwide rights to both proprietary items.





6



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XENACARE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)





NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Presentation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, BRS, Inc., Xenacare, LLC, XenaStaff, LLC and XenaCeutical, LLC. All material intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates are based on managements knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

Going Concern

As shown in the accompanying financial statements, the Companys operating and capital requirements in connection with operations have been and will continue to be significant. The recurring losses from operations and increased contractual agreements raise doubt about the Companys ability to continue as a going concern. Based on current plans, the Company anticipates that revenues earned from SunPill and AlGal product sales will be the primary source of funds for operating activities. In addition to existing cash, the Company may rely on bank borrowing, if available, or sales of securities to meet the basic capital and liquidity needs for the next 12 months. Additional capital may be sought to fund the expansion of product lines and marketing efforts, which may also include bank borrowing, or a private placement of securities. Our ability to continue as a going concern is dependent upon our ability to generate sales from our new products and our obtaining adequate capital to fund losses until we become profitable. There can be no assurance that managements plans will be successful.

The financial statements have been prepared on a going concern basis and accordingly do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3.  RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 allows companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 will become effective for the Company beginning in fiscal 2009. The Company is currently evaluating what effects the adoption of SFAS No. 159 will have on the Companys future results of operations and financial condition.

NOTE 4.  PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other current assets consist of $125,000 related to royalty advances associated with a recently signed agreement.

NOTE 5.  OTHER LIABILITIES

Other liabilities totaling $794,815 consist exclusively of advances made by the Companies existing shareholders, either in stock or cash, on behalf of the Company in order to facilitate certain transactions. Per the terms of the advances, the Company is obligated to either replace the shares or reimburse the shareholder for the cash value of the transaction.



7



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XENACARE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)





NOTE 6.  INCOME TAXES

The benefit from income taxes for the nine months ended September 30, 2007 and 2006 respectively, consists of the following:



|                                            |                           |          |      |   |          |  
|------------------------------------------- | ------------------------- | -------- | ---- | - | -------- | -
|                                            | Nine Months September 30, |         
|                                            | 2007                      |          | 2006 |  
|Current:                                    |                           |          |      |   |          |  
|Federal                                     | $                         | (502,746 | )    | $ | (751,918 | )
|State                                       |                           | (81,327  | )    |   | (121,634 | )
|Benefit from income taxes                   |                           | (584,073 | )    |   | (873,552 | )
|Increase in valuation allowance             |                           | 584,073  |      |   | 873,552  |  
|Benefit from income taxes, net of allowance | $                         |         |      | $ |         |  



The difference between benefit from income taxes computed by applying the federal statutory corporate tax rate and actual income tax expense for the nine months ended September 30, 2007 and 2006 respectively, are as follows:



|                                           |  |                           |  |        | 
|------------------------------------------ |  | ------------------------- |  | ------ | 
|                                           |  | Nine Months September 30, | 
|                                           |  | 2007                      |  | 2006   | 
|Statutory federal income tax rate          |  | 34.0%                     |  | 34.0%  | 
|State income taxes, net of federal benefit |  | 5.5%                      |  | 5.5%   | 
|Increase in valuation allowance            |  | -39.5%                    |  | -39.5% | 
|Effective income tax rate                  |  | 0.0%                      |  | 0.0%   | 



The net deferred tax assets at September 30, 2007 are comprised of the following:



|                                  |               |            |      |   |          |  
|--------------------------------- | ------------- | ---------- | ---- | - | -------- | -
|                                  | September 30, |           
|                                  | 2007          |            | 2006 |  
|Deferred tax assets - non-current | $             | 1,460,574  |      | $ | 873,552  |  
|Valuation allowance               |               | (1,460,574 | )    |   | (873,552 | )
|Net deferred tax asset            | $             |           |      | $ |         |  



The Company currently has a net operating loss (NOL) of $3,697,654 which can be utilized until the year 2027. The deductibility of the NOL is subject to the limitations provision of the Federal tax code (i.e. IRC § 382).

NOTE 7.  COMMITMENTS AND CONTINGENCIES

Negotiations for several material agreements were completed in the second quarter of 2007 that were effective for the first quarter of 2007 as follows:

·

Business consulting agreements with two individuals for their services in the areas of mergers and acquisitions. These agreements cover cash as well as stock compensation and health insurance benefits and expire December 31, 2011.

·

Employment agreements with the Companys President and Chief Executive Officer. These agreements cover compensation and health insurance and expire December 31, 2011.

·

An Exclusive Licensing and Royalty Agreement with Mr. Robert Bell for the Sunpill. Payments are based upon sales volume with established quarterly minimum guaranteed royalty payments.

·

An Exclusive Sales Agreement with Algae BioSciences, Corp., for the exclusive worldwide rights to distribute an algae based Omega 3 fatty acid as a raw material.

·

An Image Marketing and Branding Agreement with Dr. Bob Arnot, a nationally known medical and news correspondent. The terms of the agreement extend through May 31, 2009 and include various levels of compensation based upon performance.



8



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XENACARE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)





NOTE 8.  COMMON STOCK

On May 14, 2007 the Company was notified by the Securities and Exchange Commission that they would be effective for public trading after 60 days and subject to the submission of Post Effective Amendment No. 1 to its Form SB-2, updating certain information for the three months ended March 31, 2007. The SB-2 was accepted and closed July 14, 2007.

During the third quarter of 2007, 430,345 of common shares were issued to certain founders resulting in a reduction of $887 to additional paid in capital equal to the par value of the shares issued.

NOTE 9.  SUBSEQUENT EVENTS

On October 30, 2007 the Company entered into an agreement with Beta Pharmaceutical Corporation to acquire its 2BHealthy division in exchange for 100,000 shares of the Companys restricted common stock. The Company acquired, rights to 14 nutritional products including inventory, trademarks, stock keeping units (SKU) identities and existing slotting and shelf space. 2BHealthy is a manufacturer and international distributor of nutritional supplements and prescription pharmaceuticals to numerous South American, Asian and European countries.

On November 14, 2007 the Company entered into an agreement with Natural Health Network, LLC (NHN) whereby the Company agreed to license, market and distribute certain of the Companys published books and materials and to market and distribute a proprietary formulation of certain of the Companys nutritional supplement products. The Company will receive license fees and royalties for sales of its products and literature. NHN is a direct response marketing company whose expertise is in creating and developing product, supply chain creation and management, production of direct response commercials or infomercials and promoting, marketing and selling product to consumers, distributors and retailers. The initial agreement covers a book published by our CEO and Chairman, Dr Alan Xenakis, MD titled When Good Medicines Do Bad Things to Healthy Bodies. The agreement is performance based, providing for royalties and license fees based on units sold. The agreement also provides for, as an additional incentive, the issuance of 1,250 shares of the Companys common stock upon execution of the agreement and an additional 25,000 shares for every 250,000 units sold, up to a maximum of 100,000 shares.



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Introduction

Managements discussion and analysis of financial condition and results of operations is provided as a supplement to our condensed consolidated financial statements and accompanying notes to help provide an understanding of our financial condition, changes in financial condition and results of operations. The discussion and analysis is organized as follows:

·

Overview and Operations.This section provides a general description of our business, trends in our industry, as well as significant transactions that have occurred that we believe are important in understanding our financial condition and results of operations.

·

Caution concerning forward-looking statements.This section discusses how certain forward-looking statements made by us throughout this discussion and analysis are based on managements present expectations about future events and are inherently susceptible to uncertainty and changes in circumstance.

·

Recent accounting pronouncements.This section provides an analysis of relevant recent accounting pronouncements issued by the Financial Accounting Standards Board (FASB) and the effect of those pronouncements.

·

Critical accounting policies.This section discusses those accounting policies that are both considered important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application.

·

Results of operations.This section provides an analysis of our results of operations for the three and nine months ended September 30, 2007 relative to the comparative prior year period presented in the accompanying consolidated statements of operations.

·

Liquidity and capital resources.This section provides an analysis of our cash flows, capital resources and off-balance sheet arrangements and our contractual obligations as of September 30, 2007.

·

Risk Factors.This section discusses the potential risks and uncertainties associated with investing in our securities.



Overview and Operations

XenaCare Holdings, Inc. (the Company, XC Holdings, we, us or our) was organized under the laws of Florida in June 2005 to formulate, market and distribute nutrition supplement products (NSPs). Its predecessor, XenaCare LLC was organized in 2001 to validate its concept and conduct market tests by our CEO and Chairman, Dr. Alan Xenakis for the limited purpose of the education, sale and distribution of NSPs at doctors offices.



The Company currently operates or is in the process of developing the following lines of NSPs and performance products:

·

Our line of Clinical NSPs includes XenaCor, XenaZyme Plus and XenaTri. These products are poly-formulas designed to address key multi-factors in disease processes such as atherosclerosis and diabetes. The Company has expanded its historical clinical line by formulating a line of body replenishment NSPs, which are designed to combat the nutrient depletion effects of commonly prescribed drugs.

·

Our line of Personal Performance Products includes Touch n Tingle, a topical cream, formulated to support for certain intimate performance enhancing pharmaceuticals.

·

Our line of Lifestyle Performance Productsis currently under development. We are developing formulations for the Lifestyle Performance market, which consists of a sports line for athletes and increased performance for the over 50 generation. As of the date of this filing we have not completed any of the formulations.

·

Our line of Protective NSPs currently consists of Sunpill and AlGal. Sunpill is a revolutionary nutritional supplement that defends your skin from photo-aging and sun-damage. AlGal is a pure uncontaminated algae based Omega 3 fatty acid.



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Since mid 2005, we expanded our focus and began to formulate NSPs for personal and lifestyle performance products. We also developed new distribution channels for our historical Clinical NSPs. We have also entered into an exclusive worldwide proprietary licensing agreement with Robert Bell, the founder of Banana Boat and Sea and Ski sun protection products, through which we will showcase and market his latest invention, the Sunpill. Additionally, we have entered into an exclusive worldwide proprietary sales agreement for Algae BioSciences, an algae based Omega 3 fatty acid that can be ingested as a food additive or through other nutraceutical and medicinal applications.

Substantially all revenues to date have been generated from sales of historical Clinical NSPs, XenaCor, XenaTri and XenaZymePlus in doctors offices. Since our inception, we have never been profitable.



We purchase all of our products and supplies from third-party sources. We have no long-term contracts, as purchases are made on an order-by-order basis. In the event that a current manufacturer is unable to meet our manufacturing and delivery requirements at some time in the future, we may suffer short-term interruptions of delivery of certain products while we establish an alternative source.

The Companys executive offices are located at 14000 Military Trail, Suite 104, Delray Beach, Florida 33484. Our telephone number is (561) 496-6676. Our web address is: www.XenaCare.com.

Clinical NSPs

Our line of Clinical NSPs seek to shift a portion of current consumer out-of-pocket spending on ineffective and/or incomplete self-care and healing products, obtained through a myriad of retail and Internet distribution systems, back into the doctors offices. The doctors offices are where the patients need for our Clinical NSPs is identified. Our Clinical NSPs provide patients with access to proprietary nutritional supplements under a doctors medical supervision. We also plan to sell and distribute these products through chiropractors offices, pharmacies and other distribution outlets. We may also use infomercials and a book authored by Dr. Xenakis, CEO and Chairman to promote our Clinical NSPs.

XenaCor, XenaTri and XenaZymePlus are specifically formulated to support and help maintain the doctor directed patient healthcare for many risk factors, including those related to homocysteine levels, lipid control, blood flow and blood pressure. These NSPs are formulated under the guidelines of the Food and Drug Administration (FDA) and its regulation of the Nutritional supplement and Health Education Act. However, while the FDA regulates the nutritional supplement industry, no approvals by the FDA are required for our products. Currently we operate on a limited basis with 22 doctors offices located in New York and Florida. Doctors receive a commission for products sold at their offices, however, we do not have written agreements with any doctors office or doctor.

We believe our Clinical NSPs listed below support and maintain the following:

·

XenaCor: the lowering of serum cholesterol, C-reactive protein and homocysteine levels. This product was designed to support cardiovascular health.

·

XenaTri: the lowering of triglycerides and raising of HDL. This product was designed to support cardiovascular health.

·

XenaZyme Plus: increases the bodys oxygen carrying capacities. This product was designed to support digestion.

We believe these NSPs significantly differentiate themselves from our competition including self-help vitamin and herbal product manufacturers and distributors. These NSPs are formulated to support the delivery of measurable subjective (improved medical history) and/or objective (laboratory results) effects regardless of what other medications or supplements the patient is taking. We believe that these NSPs support significant positive health actions and outcomes without deleterious adverse side effects. The Company does not diagnose nor treat diseases. Our products are only formulated to support and maintain an individuals health and well being.

Body Replenishment Systems (BRS) formulations provide patients access to NSPs that combat prescription drug induced nutrient depletion problems widely recognized by both consumer and clinician. As stated in The Drug-induced Nutrient Depletion Handbook, second edition (2003) by Ross Pelton et al., 16 of the top 20 drugs are associated with drug/nutrient interaction. BRS formulations focus on replacing prescription drug depleted nutrients and position themselves as extensions to the primary Clinical NSPs. We believe that BRS formulations will not



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compete with our historical Clinical NSPs as our historical Clinical NSPs specifically support disease treatment. We also believe that BRS formulations will meet a high revenue opportunity without affecting current revenue generating Clinical NSPs. The BRS formulations will be marketed and sold through the same outlets as our other Clinical NSPs. This strategy has no effect on the current and future operations of our other Clinical NSPs.

Presently twelve new formulations have been designed and manufactured for patients being treated with prescription drugs for high blood pressure, heart disease, diabetes, ulcers, depression, infection, arthritis, aids and weight loss. BRS intends to utilize healthcare professionals to execute enrollment and education of patients via toll free telephone and virtual computer linkups, using the same marketing and sales practices as our current Clinical NSPs operations. We believe BRS is a natural extension of the way doctors conduct their practice and that doctors will accept these products because they are aware that supplementation for prescription induced nutrition depletion is necessary and important for positive patient health outcomes. As part of our marketing program, Dr. Xenakis, our CEO and chairman, wrote a book titled, When Good Medicines do Bad Things to Healthy Bodies in 2006. In addition, an infomercial featuring Dr. Xenakis is being produced to educate the consumer on the depletion of nutrients by the use of prescription drugs.

We commenced the marketing of these products in late 2006 in independent pharmacies in Florida and New York as well as in doctors offices. We also intend to distribute these nutrient replenishment NSPs through traditional healthcare facilities, as well as direct market consumer sales via Internet marketing, and radio/television advertising. There is no FDA regulation or approval with respect to the replenishment formulations.

Personal Performance Products

Following our incorporation and reorganization in June 2005, it was determined that we should develop additional products for markets not previously targeted by us. As reported by The Drug Topics (July 11, 2005 issue), personal lubricants accounted for more than $500 million in drugstore sales during 2004. To address this demand, we have developed Touch n Tingle for both Men and Woman. In keeping with the Companys overall mission to support and maintain an individuals health, these products are not just personal lubricants but are formulated for both men and women with a proprietary blend developed to support the maximum flow and absorption allowed by the FDA for pleasurable intimacy use without the unwanted side effects of personal performance enhancement drugs. These formulations are topical water based gels, packaged and distributed in single use pouches.

Lifestyle Performance Products

We are developing formulations for the Lifestyle Performance market, which consists of a sports line for athletes and increased performance for the over 50 generation. As of the date of this filing we have not completed any of the formulations.

Protective NSPs

Sunpill,a revolutionary nutritional supplement that defends your skin from photo-aging and sun-damage, was developed by Robert Bell, the founder of Banana Boat, Sea and Ski, an inventor at the forefront of protecting skin from the damaging effects of the sun. We have entered into a worldwide exclusive Licensing Agreement with Bell whereby he has licensed the rights to produce and distribute the Sunpill to us. The composition of the Sunpill, when taken daily, protects the skin against the effects of ultraviolet (UV) radiation from the sun or other sources which include sunburn, skin redness, swelling, immune suppression, photo-damage, and skin cancer.

AlGal is a pure uncontaminated algae based Omega 3 fatty acid commonly found in cold water fish such as salmon. Omega 3 promotes heart health, and has been linked to increased brain function. It contributes to lowering blood pressure and strengthening artery walls. The algae based Omega 3 has no fishy smell or taste and is produced naturally in only one place on earth. The production process is patented. We have entered into an exclusive worldwide Sales Agreement with AlgaeBioSciences, Corp. and intend to distribute the raw material as an additive to food products such as cereal, and also as a nutritional supplement.

Spokesperson Agreement

Additionally, we have entered into an agreement with Dr. Bob Arnot, a nationally known medical news correspondent who will serve as our Spokesperson for the Sunpill and Algal nutritional supplements. Dr. Arnot provides such services to General Mills, among others.



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Formulation of NSPs

The Companys NSPs are currently formulated by Dr. Xenakis and Bill Downs and are proprietary to the Company. The Company has no trademark or patent protection for any of its products or services. We have historically expensed our formulation costs and do not have any separately itemized research and development expenses.

Manufacturing and Supplies

The Company uses contracted third parties to manufacture its products and to provide raw materials. The third party manufacturers are responsible for receipt and storage of raw material, production and packaging, and labeling of finished goods. At present, the Company is dependent upon manufacturers for the production of all of its products and should the manufacturers discontinue their relationship with us, the Companys sales could be adversely impacted. The Company believes at the present time it will be able to obtain the quantity of products and supplies needed to meet orders.

We purchase all of our products from third-party suppliers and manufacturers pursuant to purchase orders without any long-term agreements. In the event that a current manufacturer is unable to meet our manufacturing and delivery requirements at some time in the future, we may suffer short-term interruptions of delivery of certain products while we establish an alternative source. While we believe alternative sources are in most cases readily available and we have also established working relationships with several third-party suppliers and manufacturers, none of these agreements are long term. We also rely on third-party carriers for product shipments, including shipments to and from our distribution facilities. We are therefore subject to the risks, including employee strikes and inclement weather, associated with our carriers ability to provide delivery services to meet our fulfillment and shipping needs. Failure to deliver products to our customers in a timely and accurate manner would harm our reputation, our business and results of operations.

Material Agreements

Negotiations for several material agreements were completed in the second quarter of 2007 that were made effective for the first quarter of 2007 as follows:

·

We have entered into a Business Consulting Agreement with Bobby Story, in which Mr. Story will receive a base compensation of $12,000 per month, health insurance up to $10,000 annually, as well as stock bonuses of Common Stock of the Company. Mr. Story will serve as the Companys Chief Financial Officer, as well as seek merger and acquisition candidates. Mr. Storys contract expires on December 31, 2011.

·

We have entered into a Business Consulting Agreement with Gary Spaniak Sr., in which Mr. Spaniak will receive a base compensation of $12,000 monthly, health insurance up to $10,000 annually, as well as stock bonuses of Common Stock of the Company. Mr. Spaniak will seek merger and acquisition candidates as well as advise the Company concerning other business issues. Mr. Spaniaks contract expires on December 31, 2011.

·

We have entered into an Employment Agreement with Frank Rizzo, in which Mr. Rizzo will receive a base salary of $12,000 monthly, and health insurance up to $10,000 annually. Mr. Rizzo will serve as the Companys President. Mr. Rizzos contract expires on December 31, 2011.

·

We have entered into an Employment Agreement with Dr. Alan Xenakis, in which Dr. Xenakis will receive a base salary of $12,000 monthly, and health insurance up to $10,000 annually. Dr. Xenakis will serve as the Companys Chief Executive Officer and Chairman of the Board. Dr. Xenakiss contract expires on December 31, 2011.

·

We have entered into an exclusive Licensing and Royalty Agreement with Mr. Robert Bell for the Sunpill. Payments are based upon sales volume with established quarterly minimum guaranteed royalty payments.

·

We have entered into an Image Marketing and Branding Agreement with Dr. Bob Arnot, a nationally known medical and news correspondent. The terms of the agreement extend through May 31, 2009 and include various levels of compensation based upon performance.

·

We have entered into an Exclusive Sales Agreement with Algae BioSciences, Corp., for the exclusive worldwide rights to distribute an algae based Omega 3 fatty acid as a raw material.



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Competition

The nutritional supplement and personal intimacy industries are highly competitive. Many of the Companys competitors are large, well-known companies that have considerably greater financial, sales, marketing and technical resources than the Company. Additionally, these competitors have formulary capabilities that may allow them to formulate new or improved products that may compete with product lines the Company markets and distributes. In addition, competitors may elect to devote substantial resources to marketing their products to similar outlets and may choose to develop educational and information programs like those formulated by the Company to support their marketing efforts. The Companys business, financial condition and results of operations could be materially and adversely affected by any one or more of such developments.

Our nutritional products, in general, compete against similar products distributed by national chain stores, such as GNC and Vitamin Shoppe. Our personal performance products compete against a number of well-known brands such as KY Jelly. We are unaware of any competitors for our replenishment products, as these products are in their infancy. As the Companys sales grow, competitors may attempt to introduce products that compete directly against our products. Our failure to adequately respond to the competitive challenges faced by the products it offers could have a material adverse effect on its business, financial condition and results of operations.

Proprietary Rights

The Company regards the protection of copyrights, trademarks and other proprietary rights that it may own or license as material to its future success and competitive position. The Company intends to rely on a combination of laws and contractual restrictions such as confidentiality agreements to establish and protect its proprietary rights. Laws and contractual restrictions, however, may not be sufficient to prevent misappropriation of proprietary rights or deter others from independently formulating products that are substantially equivalent or superior. The Company has no patent or trademark protection.

Governmental Regulation

The Federal Drug Administration (FDA) oversees product safety, manufacturing, and product information, such as claims on the products label, package inserts, and accompanying literature. The FDA has promulgated regulations governing the labeling and marketing of dietary and nutritional supplement products. The regulations include:

·

the identification of dietary or nutritional supplements and their nutrition and ingredient labeling;

·

requirements related to the wording used for claims about nutrients, health claims, and statements of nutritional support;

·

labeling requirements for dietary or nutritional supplements for which high potency, antioxidant, and trans-fatty acids claims are made;

·

notification procedures for statements on dietary and nutritional supplements; and

·

pre-market notification procedures for new dietary ingredients in nutritional supplements.

We utilize a substantiation program that involves the compilation and review of scientific literature pertinent to the ingredients contained in each of our products. We continuously update our substantiation program to expand evidence for each of our product claims and notify the FDA of certain types of performance claims made in connection with our products.

In certain markets, including the United States, specific claims made by us with respect to our products may change the regulatory status of a product. For example, a product sold as a nutritional supplement but marketed as a treatment, prevention, or cure for a specific disease or condition would likely be considered by the FDA or other regulatory bodies as unapproved and thus an illegal drug. To maintain the products status as a nutritional supplement, the labeling and marketing must comply with the provisions in the Dietary Supplement Health and Education Act of 1994 (DSHEA) and the FDAs extensive regulations. As a result, we have procedures in place to promote and enforce compliance by our employees related to the requirements of DSHEA, the Food, Drug and Cosmetic Act, and various other regulations. Because of the diverse scope of regulations applicable to our products, and the varied regulators enforcing these regulatory requirements, determining how to conform to all requirements is often open to interpretation and debate. As a result, we can make no assurances that regulators will not question any of our actions in the future, even though we have put continuing effort into complying with all applicable regulations.



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Nutritional supplements are also subject to the Nutrition, Labeling and Education Act and various other acts that regulate health claims, ingredient labeling, and nutrient content claims that characterize the level of nutrients in a product. These acts prohibit the use of any specific health claim for nutritional supplements unless the health claim is supported by significant scientific research and is pre-approved by the FDA.

Regulators such as the Federal Trade Commission (FTC) regulate marketing practices and advertising of a company and its products. In the past several years, regulators have instituted various enforcement actions against numerous nutritional supplement companies for false and/or misleading marketing practices, as well as misleading advertising of certain products. These enforcement actions have resulted in consent decrees and significant monetary judgments against the companies and/or individuals involved. Regulators require a company to convey product claims clearly and accurately, and further require marketers to maintain adequate substantiation for their claims. The FTC requires such substantiation to be competent and reliable scientific evidence. Specifically, the FTC requires a company to have a reasonable basis for the expressed and implied product claim before it disseminates an advertisement. A reasonable basis is determined based on the claims made, how the claims are presented in the context of the entire advertisement, and how the claims are qualified. The FTCs standard for evaluating substantiation is designed to ensure that consumers are protected from false and/or misleading claims by requiring scientific substantiation of product claims at the time such claims are first made. The failure to have this substantiation violates the Federal Trade Commission Act.

We do not believe that Stark laws are applicable to our business because all of our products are sold for cash and there are no third party payer Medicare/Medicaid reimbursements.

Caution Concerning Forward-Looking Statements

The SEC encourages companies to disclose forward-looking information so that investors can better understand a companys future prospects and make informed investment decisions. This document contains such forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, operating income and cash flow. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as expects, anticipates, intends, plans, believes, will, estimates, and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, history of operating losses and accumulated deficit; possible need for additional financing; competition; dependence on management; risks related to proprietary rights; government regulation; and other factors discussed in this report and our other filings with the SEC.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 allows companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 will become effective for the Company beginning in fiscal 2009. The Company is currently evaluating what effects the adoption of SFAS No. 159 will have on the Companys future results of operations and financial condition.

Critical Accounting Policies

Managements Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When preparing our financial statements, we make estimates and judgments that affect the reported amounts on our balance sheets and income statements, and our related disclosure about contingent assets and liabilities. We continually evaluate our estimates, including those related to revenue, allowance for doubtful accounts, reserves for income taxes, and litigation. We base our estimates on historical experience and on various other assumptions, which we believe to be reasonable in order to form the basis for making judgments about the carrying values of assets and liabilities that are not readily ascertained from other sources. Actual results may deviate from these estimates if alternative assumptions or condition are used.





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Results of Operations

Comparison of the Three months Ended September 30, 2007 (Q3-2007) to the Three months Ended September 30, 2006 (Q3-2006)

Total revenues decreased $12,267 or 29.0%, to $30,079 in Q3-2007 from $42,346 in Q3-2006. Substantially all of our revenues to date have been generated by our proprietary Clinical NSPs - XenaCor, XenaTri and XenaZymePlus through doctors offices. We reduced the resources committed to these types of sales, which has had a direct impact on our revenues over the last 24 months. Although we will continue to market our NSPs, we are redirecting our efforts and allocating available resources to concentrate on the distribution of the Sunpill, a defense system that protects the skin from the damaging effects of the sun, and the distribution of AlGal, a tasteless, odorless form of Omega 3 fatty acid, which is used as a food additive. No sales from these new products were generated in Q3-2007.

Total cost of revenues decreased $27,327 or 59.6%, to $18,551 in Q3-2007 from $45,878 in Q3-2006. The decrease is related to our redirection of business focus from Clinical NSPs to the commercialization of our new product lines.

Selling and marketing costs decreased $459,466 or 78.2%, to $127,783 in Q3-2007 from $587,249 in Q3-2006. The decrease in selling and marketing expenses is primarily due to our switch in emphasis from Clinical NSPs. Our new products, the Sunpill and AlGal, are in currently being commercialized.

General and administrative costs increased $355,627 or 141.0%, to $607,907 in Q3-2007 from $252,280 in Q3-2006. The increase in general and administrative expenses is related to costs associated with accrued executive compensation.

Comparison of the Nine months Ended September 30, 2007 (YTD-2007) to the Nine months Ended September 30, 2006 (YTD-2006)

Total revenues decreased $114,653 or 56.4%, to $88,637 in YTD-2007 from $203,290 in YTD-2006. Substantially all of our revenues to date have been generated by our proprietary Clinical NSPs - XenaCor, XenaTri and XenaZymePlus through doctors offices. We reduced the resources committed to these types of sales, which has had a direct impact on our revenues over the last 24 months. Although we will continue to market our NSPs, we are redirecting our efforts and allocating available resources to concentrate on the distribution of the Sunpill, a defense system that protects the skin from the damaging effects of the sun, and the distribution of AlGal, a tasteless, odorless form of Omega 3 fatty acid, which is used as a food additive. No sales from these new products were generated in 2007.

Total cost of revenues decreased $75,525 or 57.2%, to $56,614 in YTD-2007 from $132,139 in YTD-2006. The decrease in costs of revenue is related to our redirection of business focus from Clinical NSPs to the commercialization of our new product lines.

Selling and marketing costs decreased $1,221,656 or 69.5%, to $535,050 in YTD-2007 from $1,756,706 in YTD-2006. The decrease in selling and marketing expenses is primarily due to our switch in emphasis from Clinical NSPs to our new products, the Sunpill and AlGal.

General and administrative costs increased $459,963 or 89.2%, to $975,491 in YTD-2007 from $515,528 in YTD-2006. The increase is due to costs associated with accrued executive compensation.

Liquidity and Capital Resources

We incurred a net loss for the nine months ended September 30, 2007 of 1,478,665. We had a $169,634 deficit in working capital at September 30, 2007 compared to a $569,602 surplus at September 30, 2006. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and we have not raised sufficient capital to implement our business model resulting in a decline in working capital for Q3-2007. Our ability to continue as a going concern is dependent upon our ability to generate sales from our new products and our obtaining adequate capital to fund losses until we become profitable.

Our operating and capital requirements in connection with operations have been and will continue to be significant. Our recurring losses from operations and increased contractual agreements raise doubt about our ability to continue as a going concern. Based on our current plans, we anticipate that revenues earned from SunPill and AlGal product sales will be the primary source of funds for operating activities. In addition to existing cash and cash equivalents,



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we may rely on bank borrowing, if available, or sales of securities to meet the basic capital and liquidity needs for the next 12 months. Additional capital may be sought to fund the expansion of our product line and marketing efforts, which may also include bank borrowing, or a private placement of securities.

We plan to continue utilizing our current resources to further develop our business, establish our sales and marketing network, operations, customer support and administrative organizations. We believe, based upon indications from our sales agents and others that sufficient revenues will be generated from product sales by the end of the fourth quarter of 2007 to cover our expenses. These revenues from product sales together with proceeds from private placements should be sufficient to meet presently anticipated working capital and capital expenditure requirements over the next 12 months. To the extent that we do not generate sufficient revenues we will reduce our expenses and/or seek additional financing. As of September 30, 2007 there were no commitments for long-term capital expenditures.

Risk Factors

We have a history of losses and if these losses continue you may lose your entire investment in our Company.

We have a history of operating losses in our business and have incurred significant net losses since our inception. Our ability to generate and sustain significant additional revenues or achieve profitability will depend upon the factors discussed elsewhere in this Risk Factors section.

Our continued operating losses have contributed to the deterioration of our cash position. Further, we have used a significant amount of our cash for consulting services, web hosting, infomercials, new product inventory and marketing materials including the publication of a book about our products. We expect that cash on hand together with funds raised under this offering will permit us to fund our current operations for the next twelve months. Unexpected increases in negative cash flow from operations or the failure to generate sales from our new products would cause us to require additional external financing before that time. Under those circumstances, if we are unable to secure additional external financing on a timely basis, we will not have sufficient cash to fund our working capital and capital expenditure requirements and we will be forced to cease operations. In such event, the shares of our common stock may cease to have any value.

The nutrition supplement industry and personal intimacy product market are intensely competitive and the strengthening of any of our competitors could harm our business.

The nutrition supplement industry is intensely competitive. Many competitors have greater name recognition and financial resources, which may give them a competitive advantage. Our competitors may also be able to devote greater resources to marketing, promotional, and pricing campaigns that may influence our continuing and potential independent associates and members to buy products from competitors rather than from us. Such competition could adversely affect our business and current market share.

XenaCare may be subject to additional laws or regulations by the Food and Drug Administration or other federal, state or foreign regulatory authorities, subject to the repeal of laws or regulations which we consider favorable, such as the Dietary Supplement Health and Education Act of 1994 (DSHEA), or subject to more stringent interpretations of current laws or regulations, from time to time in the future which may adversely impact our business and operations.

We are unable to predict the nature of such future laws, regulations, interpretations or applications, nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. We also cannot predict what effect these regulations, and the related publicity from promulgation of such regulations, could have on consumer perceptions related to the nutrition supplement market in which we will operate. The Company depends on positive publicity as it relates to the efficacy and overall health benefits derived from such products. This could have a materially adverse affect on our business, financial condition, results of operations and cash flows. The Food and Drug Administration has also announced that it is considering promulgating new Good Manufacturing Practices regulations, specific to nutrition supplements.

Such regulations, if promulgated, may be significantly more rigorous than currently applicable regulations and contain quality assurance requirements similar to Good Manufacturing Practices regulations for drug products. Therefore, we may be required to expend additional capital resources on upgrading manufacturing processes and/or equipment in the future in order to comply with the law. The Food and Drug Administration or other governmental



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regulatory bodies could require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, imposition of additional record keeping requirements, expanded documentation of the properties of certain products and expanded or different labeling and scientific substantiation. Any or all of such requirements could have a materially adverse affect on our business, financial condition, results of operations and cash flows. The Companys failure to comply with applicable Food and Drug Administration regulatory requirements could result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and possible criminal prosecutions. Because of the broad language of certain sections of DSHEA and the regulations that implement it, it is difficult for any company manufacturing or making nutrition supplements to remain in strict compliance. If we do not comply we may be subject to penalties.

We rely on limited intellectual property protection as an important element of competition.

We currently have no trademark registration for any of our products. We rely on common law trademark rights to protect our unregistered trademarks as well as our trade dress rights. Common law trademark rights generally are limited to the geographic area in which the trademark is actually used, while a United States federal registration of a trademark enables the registrant to stop the unauthorized use of the trademark by any third party anywhere in the United States. We intend to register our trademarks in certain jurisdictions where our products are sold.

Currently, we have no patents on our NSPs. However as we move forward with our branding strategy we plan to file for name trademarks on all our products. We will continue to use the current business strategy of adding proprietary blends to each NSP formula. More than the name trademark the proprietary blend formula makes formula replication challenging for any possible competitor. We believe adding proprietary blends make replication quite difficult and expensive. However, to the extent we do not have patents on our products, another company may replicate one or more of our products. Although we seek to ensure that we do not infringe the intellectual property rights of others, there can be no assurance that third parties will not assert intellectual property infringement claims against us.

If our insurance coverage is not sufficient to cover all risk exposure, we may be subject to losses.

XenaCare continues its efforts to maintain applicable insurance coverage for its officers, general liability insurance, and product liability insurance at levels deemed adequate by the Companys Board of Directors. XenaCare cannot guarantee that these same levels of insurance, at premiums acceptable to the Company, will be available in the future. As related to product liability insurance, a reduction in coverage or exclusion for one or more key raw materials, may adversely affect our ability to continue our business as currently conducted. In addition, a loss of one or more of any of these insurance policies,

or a claim-related loss in excess of insured limits might adversely affect our ability to continue our business as it is currently structured. Although we currently maintain $1,000,000 liability and medical expenses and $2,000,000 general aggregate ($5,000 deductible per occurrence) in the event that we become liable, there can be no assurance that our current insurance policy will be adequate to cover any such liabilities.

Like other retailers, distributors and manufacturers of nutrition supplements, we face an inherent risk of exposure to product liability claims in the event that the use of the products that we sell results in injury.

While management believes we are fully compliant with DSHEA, we may be subjected to various product liability claims, including claims that the NSPs we sell contain contaminants, are improperly labeled or include inadequate instructions as to use or inadequate warnings concerning side effects and interactions with other substances. In addition, we may be forced to defend lawsuits. While to date we have never been subject to any product liability claim, we cannot predict whether product liability claims will be brought against us in the future or the effect of any resulting adverse publicity on our business. Moreover, we may not have adequate resources in the event of a successful claim against us. Although we select our third-party vendors, in part, on the fact that they themselves carry insurance against liability claims, we do not have formal indemnification arrangements with the third-party vendors from which we source our NSPs. If our insurance protection is inadequate and our third-party vendors do not indemnify us, the successful assertion of product liability claims against us could result in potentially significant monetary damages. In addition, interactions of our NSPs with other similar products, prescription medicines and over-the-counter drugs have not been fully explored.

While XenaCare makes no labeling claims with its NSPs, because we will be dealing with large numbers of end users and will have a significant level of legal exposure due to this volume of customer relationships. The most



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serious area of exposure will be in relation to product advertising claims and the product quality. People may purchase NSPs from us expecting certain physical results, unique to nutrition products. If they do not perceive expected results to occur, certain individuals or groups of individuals may seek monetary retribution. We have no assurance that our insurance company will comply with coverage in all instances or that such coverage will be adequate to cover all potential losses.

Our business may be adversely affected by unfavorable publicity within the nutrition supplement market or personal intimacy market.

We believe that the nutrition supplement and personal intimacy markets are significantly affected by national media attention. As with any retail provider, future scientific research or publicity may not be favorable to the nutrition supplement industry or to any particular product, and may not be consistent with earlier favorable research or publicity. Because of our dependence on consumers perceptions, adverse publicity associated with illness or other adverse effects resulting from the consumption of our NSPs, personal performance or any similar products distributed by other companies and future reports of research that are perceived as less favorable or that question earlier research, could have a material adverse effect on our business, financial condition and results of operations. We are highly dependent upon consumers perceptions of the safety and quality of our products as well as similar products distributed by other companies. Thus, the mere publication of reports asserting that nutrition supplements or personal performance products may be harmful or questioning their efficacy could have a material adverse effect on our business, financial condition and results of operations, regardless of whether such reports are scientifically supported or whether the claimed harmful effects would be present at the dosages recommended for such products.

We are reliant on a limited number of products to generate revenues.

We currently offer a limited number of products. If we are unable to increase the number of products we offer, the risks associated with our business will increase since a decline in market demand for one or more products, for any reason, could have a significant adverse impact on the results of our operations.

Our success is dependent upon the successful introduction of our new products and success in expanding the demand for existing brands.

We believe the growth of our net sales is substantially dependent upon our ability to introduce our products to the public. At present, we have limited resources to spend on advertising and marketing therefore we will rely, to a large extent, on our agreements with strategic partners to assist in our development of distribution channels. Our ability to meet future obligations is dependent in large measure on the success of our product sales. We expect to introduce additional products.

The success of new products is dependent upon a number of factors, including our ability to formulate products that will appeal to consumers and respond to market trends in a timely manner. There can be no assurance that our efforts to formulate new products will be successful or that consumers will accept our new products. In addition, products experiencing strong popularity and rapid growth may not maintain their sales volumes over time.

If our outside suppliers and manufacturers fail to supply products in sufficient quantities and in a timely fashion, our business could suffer.

Outside manufacturers and suppliers make and supply all of our products. We do not have long-term agreements with our manufacturers or suppliers. Our profit margins and timely product delivery are dependent upon the ability of our outside suppliers and manufacturers to supply us with products in a timely and cost-efficient manner. Our ability to enter new markets and sustain satisfactory levels of sales in each market depends upon the ability of our outside suppliers and manufacturers to produce the ingredients and products and to comply with all applicable regulations. As a precaution, we have approved alternate suppliers and manufacturers for our products. We believe we have dependable suppliers for all of our ingredients. If our suppliers are unable to perform, any delay in replacing or substituting such ingredients could affect our business. However, the failure of our primary suppliers or manufacturers to supply ingredients or produce our products could adversely affect our business operations.



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We do not have long-term contracts with suppliers, manufacturers and distributors are limited and we are dependent on the services of these third parties.

We purchase all of our products from third-party suppliers and manufacturers pursuant to purchase orders, but without any long-term agreements. In the event that a current supplier or manufacturer is unable to meet our manufacturing and delivery requirements at some time in the future, we may suffer short-term interruptions of delivery of certain products while we establish an alternative source. While we believe alternative sources are in most cases readily available and we have also established working relationships with several third-party suppliers and manufacturers, none of these agreements are long term. We also rely on third-party carriers for product shipments, including shipments to and from our distribution facilities. We are therefore subject to the risks, including employee strikes and inclement weather, associated with our carriers ability to provide delivery services to meet our fulfillment and shipping needs. Failure to deliver products to our customers in a timely and accurate manner would harm our reputation and our business and results of operations.

Many of our competitors have substantially greater financial, technical and human resources than we do.

We do not engage in research and development. Our competitors may succeed in formulating products that are more effective than those currently marketed or proposed for formulation by us. Progress by other researchers in areas similar to those being explored by us may result in further competitive challenges. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products. They may also establish exclusive collaborative or licensing relationships with our competitors.

In addition, large pharmaceutical companies have begun to compete with others and with us in the supplement industry. Packaged food and beverage companies compete with us on a limited basis in the supplement market. Increased competition from such companies could have a material adverse effect on us because such companies have greater financial and other resources available to them and possess manufacturing, distribution and marketing capabilities far greater than ours.

We also face competition in both the health food store and mass market distribution channels from private label nutrition supplements and multivitamins offered by health and natural food store chains, drugstore chains, mass merchandisers and supermarket chains.



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ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The term disclosure controls and procedures is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC.

In connection with the review of our condensed consolidated financial statements for the Nine months ended September 30, 2007, we discovered no significant internal control deficiencies that we consider to be reportable conditions.

A material weakness is a significant deficiency in one or more of the internal control components that alone or in the aggregate precludes our internal controls from reducing to an appropriately low level of risk that material misstatements in our financial statements will not be prevented or detected on a timely basis.

As required by the SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. This evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our controls and procedures were effective as of the end of the period covered by this report.

We will use our best efforts to maintain necessary policies and procedures within the Company to provide adequate disclosure controls and procedures.

Inherent Limitations on Effectiveness of Controls

We do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. 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. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goal under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks.

Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Controls

None.



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PART II  OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS

There are currently no material legal proceedings, nor pending legal proceedings involving our Company.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

No.

Description

10.13

Asset Purchase Agreement between Beta Pharmaceutical Corp. and Xenacare Holdings, Inc. dated October 30, 2007

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

32.2

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.



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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Signed by the following persons in the capacities and on the dates indicated.

|                    |  |                                                                                    |  |                   
|------------------- |  | ---------------------------------------------------------------------------------- |  | ------------------
|                    |  |                                                                                    |  |                   
|                    |  |                                                                                    |  |                   
|Signature           |  | Title                                                                              |  | Date              
|                    |  |                                                                                    |  |                   
|/s/ DR. ALANXENAKIS |  | Chief Executive Officer and
(principal executive officer)
Chairman                 |  | September 19, 2007
|Dr. Alan Xenakis    | 
|                    |  |                                                                                    |  |                   
|/s/ BOBBYSTORY      |  | Chief Financial Officer and
Treasurer (principal financial
and accounting officer) |  | September 19, 2007
|Bobby Story         | 
|                    |  |                                                                                    |  |                   
|/s/ FRANKRIZZO      |  | President and Director                                                             |  | September 19, 2007
|Frank Rizzo        







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