SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 **FORM 10-QSB**
 
 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2004
 
 OR
 
 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from _______________ to _______________
 
 Commission file number 0-21384
 
 KAIRE HOLDINGS INCORPORATED
 (Exact name of registrant as specified in its charter)
 
 
 *Delaware*

**13-3367421**(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.) 
 
 5520 Sespe Avenue, Suite D, Fillmore , CA
93015(Address of principal executive offices)
(Zip code) 
 Registrant's Telephone number, including area code: (805) 524-0024
 
 __________________________________________________________________
 (former name, 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 Exchange Act 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.  Yes X  No _
 
 State the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date.
 
 Class of Common Stock     Outstanding at November 18, 2004
 $.001 par value      30,927,252 shares
 
 
 Transitional Small Business Disclosure Format  Yes   No X
 
 
 
 
 
  2   FORM 10-QSB
 Securities and Exchange Commission
 Washington, D.C. 20549
 
 KAIRE HOLDINGS INCORPORATED
 
 Index
 
 PART I - FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements
 
 Condensed Consolidated Balance Sheets at
 December 31, 2003 and September 30, 2004 (unaudited)
 
 Condensed Consolidated Statements of Operations (Unaudited)
 for the three months ended September 30, 2003 and 2004
 
 Condensed Consolidated Statements of Operations (Unaudited)
 for the nine months ended September 30, 2003 and 2004
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 for the three months ended September 30, 2003 and 2004
 
 Notes to Condensed Consolidated Financial Statements
 
 Item 2. Management's Discussion and Analysis of Financial Condition and Results of
 Operations.
 
 Item 3. Controls and Procedures
 
 PART II. - OTHER INFORMATION
 
 Item 1. Legal Proceedings
 
 Item 2  Changes in Securities and Use of Proceeds
 
 Item 3  Defaults Upon Senior Securities
 
 Item 4.  Submission of Matters of a Vote to Security Holders
 
 Item 5  Other Information
 
 Item 6. Exhibits and Reports on Form 8-K
 
 
 SIGNATURES
 
 
   2    
 
 
 
 
 
 
 
 
 
 
 
 **Kaire Holdings Incorporated**
 **and Subsidiaries**
 
 **Consolidated Financial Statements**
 
 **September 30, 2004**
  3   **Kaire Holdings Incorporated**
 **and Subsidiaries**
 
 **Consolidated Financial Statements**
 
 **September 30, 2004**
 
 
 
 
 
 **C O N T E N T S**
 
 
 
 
 Consolidated Balance Sheets
1 - 2Consolidated Statements of Operations
3Consolidated Statements of Cash Flows
4 - 6Notes to Consolidated Financial Statements
7 - 27 
 
   4   **Kaire Holdings Incorporated**
**and Subsidiaries**
**Consolidated Balance Sheets**
**As of September 30, 2004 and December 31, 2003**  
 ASSETSSeptember 30, 2004

December 31, 2003(unaudited)

(audited)Current AssetsCash and cash equivalents
$
45,933

$
45,055Accounts receivable, trade

262,662


66,762Other receivables

119,117


115,157Advances to shareholders

-


39,930Inventory


146,113


85,228Prepaid expenses

(226)


-Deposits


45,549


45,549Net assets of discontinued operations held for sale - Entremetrix

-


29,239Total Current Assets

619,148


426,920Other AssetsProperty and equipment, net of accumulated depreciation

76,411


83,413Total Other Assets

76,411


83,413Total Assets
$
695,559

$
510,333 
 
 
 
 
 
 
 
 
 (continued)
 
 
   See accompanying notes to these financial statements.5 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Consolidated Balance Sheets (Continued)**
**As of September 30, 2004 and December 31, 2003**   
 
 LIABILITIES AND STOCKHOLDERS' EQUITYSeptember 30, 2004

December 31, 2003(unaudited)

(audited)Current LiabilitiesAccounts payable and accrued expenses
$
345,509

$
842,934Income tax payable

647


14,500Loans payable

-


68,384Notes payable - related parties

5,081


5,746Advances from shareholders

152,329


63,707Liabilities of discontinued operations - Classic Care

698,816


698,816Accrued interest - convertible debt

198,836


230,821Convertible notes - current portion

383,226


868,567Total Current liabilities

1,784,444


2,793,475Long term liabilitiesConvertible notes payable and debentures

543,195


95,574Total long term liabilities

543,195


95,574Total Liabilities

2,327,639


2,889,049Stockholders' equityCommon stock, $0.001 par value900,000,000 shares authorized; 30,927,252and 7,393,007 shares issued and outstanding, respectively

30,928


7,393Additional paid in capital

40,287,956


38,503,257Accumulated deficit

(41,950,964)


(40,889,366)Total Stockholders' Equity

(1,632,080)


(2,378,716)Total Liabilities and Stockholders' Equity
$
695,559

$
510,333 
   See accompanying notes to these financial statements.6 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Consolidated Statements Of Operations**
**For The Three and Nine Months Ending September 30, 2004 and 2003**   
 Three Months Ended

Nine Months EndedSeptember 30,

September 30,

September 30,

September 30,2004

2003

2004

2003(unaudited)

(unaudited)

(unaudited)

(unaudited)Net revenues
$
641,103

$
323,052

$
1,738,475

$
848,080Cost of goods sold

(483,993)


(236,216)


(1,325,423)


(619,768)Gross Profit

157,110


86,836


413,052


228,312Operating ExpensesSalaries

129,392


76,359


380,879


219,468Depreciation and amortization

7,238


17,499


21,714


36,863General and administrative

164,623


83,423


1,027,633


590,822Selling expense

200


1,268


19,365


4,273Rent


4,560


10,984


32,770


40,853Total Operating Expenses

306,013


189,533


1,482,361


892,279Loss from operations

(148,903)


(102,697)


(1,069,309)


(663,967)Other Income (Expenses)Interest expense

(83,901)


(43,686)


(331,701)


(120,305)Miscellaneous income

104,192


-


121,335


27,705Miscellaneous expense

-


-


(80)


-Total Other Income (Expenses)

20,291


(43,686)


(210,446)


(92,600)Loss from continuing operations before income taxes

(128,612)


(146,383)


(1,279,755)


(756,567)****Provision for income taxes

-


(546)


(3,404)


(2,165)Loss from continuing operations
****
(128,612)

****
(146,929)

****
(1,283,159)

****
(758,732)Discontinued operationsLoss from operations of discontinued segment (Classic Care)net of income tax expense of $200 in 2003

-


(1)


-


(20,218)Gain on disposal of assets of discontinued segment (Classic Care)

-


-


-


78,668Loss from operations of discontinued segment (Entremetrix), netof income tax expense of $200 for both years

-


(48,971)


(55,287)


(180,043)Gain on sale discontinued segment (Entremetrix)
****
-


-

****
276,848


-Gain/(Loss) from Discontinued Operations
****
-


(48,972)

****
221,561


(121,593)Net Loss
$
(128,612)

$
(195,901)

$
(1,061,598)

$
(880,325)****(Loss) earnings per weighted average share ofcommon stock outstanding - basic and dilutedFrom continuing operations
$
(0.00)

$
(0.03)

$
(0.05)

$
(0.20)From discontinued operations

-


(0.01)


0.01


(0.03)Total (loss) earnings per share - basic and diluted
$
(0.00)

$
(0.04)

$
(0.04)

$
(0.23)Weighted-average shares outstanding - basic and diluted

29,509,257


4,461,446


25,018,482


3,820,374 
 
   See accompanying notes to these financial statements.7 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Consolidated Statements Of Cash Flows**
**For The Nine Months Ending September 30, 2004 and 2003**   
 September 30,

September 30,2004

2003(unaudited)

(unaudited)Increase (decrease) in cash and cash equivalentsNet loss
$
(1,061,598)

$
(880,325)Adjustments to reconcile net loss to net cash usedin operating activitiesDepreciation and amortization

21,714


36,863Amortization of warrant and beneficial conversion feature

185,514


12,081Common stock issued for professional services and compensation

648,785


322,444Common stock issued for payment of interest

-


324Gain on extinguishment of notes payable and related interest

(107,742)


-Income from operations of discontinued operations - Classic Care

-


(16,458)Loss on disposition of assets of discontinued operations - Classic Care

-


41,933Gain on sale of discontinued operations - EntreMetrix

(276,848)


-Loss from operations of discontinued operations - entreMetrix

55,287


180,043Change in net assets and liabilities of discontinued operations - Classic Care

-


(54,499)Change in net assets and liabilities of discontinued operations - entreMetrix

29,239


(16,121)Other

(25,983)


43,324Non-cash other income (expense)

(5,733)


3,086Total adjustments to net income
$
(537,365)

$
(327,305)Cash flow from operating activities:Changes in operating assets and liabilities:Trade accounts receivable
$
(195,900)

$
67,267Deposits

-


4,950Other receivables and assets

(3,960)


39,325Shareholders advances

39,930


-Prepaids

226


-Inventory

(60,885)


(74,142)Income and sales tax payable

(15,507)


3,485Accrued interest on convertible notes

84,673


255,786Accounts payable and accrued expenses

(97,195)


33,399Cash flow generated by (used in) operating activities
$
(785,983)

$
2,765Cash flow from investing activities:Purchase of property and equipment
$
(14,712)

$
(7,180)Cash acquired in acquisition of entreMetrix, Inc.

-


27,576Net cash generated by (used in) investing activities
$
(14,712)

$
20,396 
 
 
 
 (continued)
 
   See accompanying notes to these financial statements.8 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Consolidated Statements Of Cash Flows (Continued)**
**For The Nine Months Ending September 30, 2004 and 2003**   
 September 30,

September 30,2004

2003(unaudited)

(unaudited)Cash flow from financing activities:Proceeds from notes payable - shareholders
$
208,622

$
17,014Payments on notes payable - shareholders

(120,000)


-Proceeds from notes payable - related parties

1,325


5,546Payments on notes payable - related parties

(1,990)


-Proceeds from loans

-


7,435Payments on loans

(68,384)


(23,542)Proceeds from convertible notes payable

650,000


10,304Proceeds from conversion of warrants

132,000


-Net cash generated by (used in) financing activities
$
801,573

$
16,757Net (decrease) increase in cash and cash equivalents
$
878

$
39,918Cash and cash equivalents at beginning of year

45,055


20,356Cash and cash equivalents at end of period
$
45,933

$
60,274**Supplementary disclosures of cash flow information**Cash paid during the year forInterest
$
2,561

$
-Taxes
$
12,399

$
- 
 
 **Supplemental schedule of non-cash investing and financing activities:**
 
 During the nine months ended September 30, 2004, the Company entered into the following non-cash transactions:
 
 Gain on extinguishment of note payables and related accrued interest of $107,742
 
 Issued 3,955,000 shares of common stock for consulting services and compensation valued at $657,250.
 
 Issued 18,631,518 shares of common stock for conversion of $671,341 of notes payable and interest.
 
 Issued 2,197,727 shares of common stock to an officer for prior year compensation valued at $317,980 and current period
 compensation of $73,770.
 
 Retired 1,250,000 shares of commons stock valued at $250,000.
 
 The sale of entreMetrix resulted in a non-cash gain of $276,848.
 
 
 
 
 (continued)
 
   See accompanying notes to these financial statements.9 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Consolidated Statements Of Cash Flows (Continued)**
**For The Nine Months Ending September 30, 2004 and 2003**   
 During the nine months ended September 30, 2003, the Company entered into the following non-cash transactions:
 
 Issued 75,000 shares of common stock for services valued at $22,500
 
 Issued 15,000 shares of common stock for conversion of $1,776 of notes payable and $324 of accrued interest.
 
 Issued 988,733 shares of common stock for legal and consulting services valued at $299,944
 
 In March 2003, the Company returned $26,625 of vehicles under capital leases to the lessors.
 
 
 In January 2003, the Company acquired assets ofSespe PharmacyInventory
$
81,068Property and equipment

100,000Assets acquired

181,068Cash paid

(65,000)Notes payable

(116,068)Net
$
-In March 2003, the Company acquired entreMetrix, Inc. for 1,250,000 shares
of common stock and a note payable for $2.5 millionCash acquired in transaction
$
27,576Accounts receivable

958Prepaid expenses and other assets

135,253Goodwill

2,906,985Property and equipment

51,323Accounts payable and accrued expenses

(262,620)Notes payable

(109,475)Issuance of common stock - acquisition

(250,000)Note payable - acquisition

(2,500,000)$
- 
 
 
 
   See accompanying notes to these financial statements.10 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Statements**
**September 30, 2004**   
 **1.**  **Summary of Significant Accounting Policies**
 
 Organization and Line of Business
 
 Kaire Holdings Incorporated (Kaire or "the Company"), a Delaware corporation, was incorporated on June 2, 1986. Effective February 3, 1998, Kaire changed its name to Kaire Holdings Incorporated from Interactive Medical Technologies, Ltd. in connection with its investment in Kaire International, Inc. ("KII").
 
 In January 2003, the Company, through its subsidiary Effective Health, Inc., (Effective Health) purchased all tangible and intangible assets of Sespe Pharmacy, a privately held company located in Fillmore, California.
 The Company through its subsidiary Effective Health operates Sespe Pharmacy (Sespe). Sespe purchases prescription drugs in bulk and fills prescriptions for individuals living in senior assisted living and retirement centers in the Los Angeles area. Primary sales are to individuals and consist of packaged prescription drugs in prescribed dosages. These packaged drug sales are primarily paid for by Medi-Cal, and the balances of the sales that are not covered by Medi-Cal are paid directly by individuals. Sespe bills Medi-Cal and other third-party payors on behalf of the customer and receives payment directly from Medi-Cal. Additionally, Sespe operates a small retail pharmacy to serve walk-up customers.
 
 
 Basis of presentation
 
 The accompanying unaudited interim consolidated financial statements represent the financial activity of Kaire Holdings Incorporated and its subsidiaries. The consolidated financial statements for the nine and twelve months ended September 30, 2004 and December 31, 2003, have been prepared in accordance with generally accepted accounting principles for interim financial information in the US and in accordance with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to consolidated financial statements and footnotes thereto for the fiscal quarter ended September 30, 2004, included herein. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All inter-company transactions were eliminated. The Companys fiscal year ends on December 31 each year. The financial statements and notes are representations of the management and the Board of Directors who are responsible for their integrity and objectivity.
 
 The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.
 
 
  See accompanying notes to these financial statements.11 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **1.**  **Summary of Significant Accounting Policies (continued)**
 
 History
 
 In 1999, the Company formed YesRx.com, Inc., an Internet drugstore focused on pharmaceuticals, health, and wellness and beauty products. The Company focuses on selling drugs for chronic care as opposed to emergency needs and works mainly with the patient who has regular medication needs and requires multiple refills. In November of 2000, the Company advanced its business strategy with the introduction of the YesRx Health Advocate Program. The Health Advocate Program provides medication compliance programs to HIV/AIDS, diabetic and senior health communities.
 
 In May 2000, the Company acquired Classic Care, Inc. (Classic Care), which was organized as a corporation in April 1997, under the Laws of the State of California. Classic Care operates as an agency distributor of pharmaceutical products, via a unique prescription packaging system for consumers at senior assisted living and retirement centers in the Los Angeles area. Classic Care purchases prescription drugs in bulk and fills prescriptions for individuals living in the aforementioned facilities. Primary sales are to individuals and consist of packaged prescription drugs in prescribed dosages. These packaged drug sales are primarily paid for by Medi-Cal, and the balances of the sales that are not covered by Medi-Cal are paid directly by individuals. Classic Care bills Medi-Cal and other third-party payors on behalf of the customer and receives payment directly from Medi-Cal.
 
 On May 20, 2002, the Company and the original Classic Care Shareholders reached an agreement to settle all amounts due them. This agreement resulted in the Company selling the long-term services business clients to the original Classic Care shareholders and relinquishing all rights in the long-term services business in return for a release from repaying the promissory notes and contingent payments resulting from the original acquisition. In December 2002, the Company was informed by the Department of Health Services (DHS) that the Medi-Cal Program was taking the following actions against Classic Care: 1) withholding 100 percent of payment to Classic Care; and 2) temporarily suspending and deactivating Classic Cares Medi-Cal provider number. In January 2003, the Companys management decided to start the process of a voluntary dissolution of Classic Care.
 
 
 Principles of Consolidation
 
 The unaudited consolidated financial statements include the accounts of Kaire and its wholly-owned subsidiaries (collectively the Company), a publicly-traded company listed and traded on the NASDAQ Over the Counter Bulletin Board (OTCBB). The Companys subsidiaries include Effective Health, Inc. (dba Sespe Pharmacy), Classic Care, Inc. (dba Classic Care Pharmacy) and Entremetrix, Inc. Intercompany accounts and transactions have been eliminated upon consolidation.
 
  See accompanying notes to these financial statements.12 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **1.**  **Summary of Significant Accounting Policies (continued)**
 
 Principles of Consolidation (continued)
 
 The consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do no include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to consolidated financial statements and footnotes thereto for the three and nine months ended September 30, 2004, included herein. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany transactions were eliminated. The Companys fiscal year ends on December 31 each year.
 
 The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.
 
 
 Estimates
 
 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include valuation of reserve for litigation, allowance for doubtful accounts and third-party contractual agreements, and the net realizable value of assets of discontinued operations.
 
 
 Cash and Cash Equivalents
 
 For purpose of the statements of cash flows, cash equivalents include amounts invested in a money market account with a financial institution. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates market.
 
 
 Concentration of Cash
 
 The Company at times during the year maintained cash balances in excess of the federally insured limit of $100,000 per institution. There were no uninsured balances as of September 30, 2004.
 
 
  See accompanying notes to these financial statements.13 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **1.**  **Summary of Significant Accounting Policies (continued)**
 
 Net Client Revenue
 
 Net client revenue represents the estimated net realizable amounts from clients, third-party payors and others for sale of products or services rendered.
 
 For revenue recognition, revenue is recorded when the prescription is filled or when services are performed. A significant portion of revenue is from federal and state reimbursement programs.
 
 The Medicare and Medi-Cal programs are the largest payors for services rendered by the Company. The Company is a party to nonexclusive agreements with certain third-party payors, and termination of such third-party agreements could have an adverse effect on the Company.
 
 
 Third-Party Contractual Adjustments
 
 The amount of revenue is based on the Companys established billing rates less allowances and discounts principally for patients covered by Medicare and Medi-Cal and other contractual programs. Payments under these programs are based on either predetermined rates or the costs of drugs. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. These contractual allowances and discounts are charged to accounts receivable in the accompanying consolidated balance sheets.
 
 
 Net Loss per Share
 
 Loss per common share is computed on the weighted average number of common shares outstanding during each year. Basic loss per share is computed as net loss applicable to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities when the effect would be dilutive.
 
 Effective August 25, 2003, the Company concluded a reverse split at a ratio of 1-for-200. All loss per share calculations and shares issued were retroactively adjusted to reflect the reverse stock split.
 
 
 Inventory
 
 Inventory consists primarily of pharmaceuticals and health care products and is stated at the lower of cost or market on a first-in-first-out basis.
 
 
  See accompanying notes to these financial statements.14 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **1.**  **Summary of Significant Accounting Policies (continued)**
 
 Income Taxes
 
 The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. The Company has recorded a full valuation allowance to reduce the deferred tax assets due to the Company incurring recurring losses and uncertainty regarding the recoverability of these tax assets in the future.
 
 
 Fair Value of Financial Instruments
 
 The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. SFAS NO. 107, Disclosure about Fair Value of Financial Instruments, requires certain disclosures regarding the fair value of financial instruments. For certain of the Company's financial instruments, including cash and cash equivalents and accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities. The amounts shown for notes payable also approximate fair value because current interest rates offered to the Company for debt of similar maturities are substantially the same.
 
 
 Stock-Based Compensation
 
 SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and encourages the use of the fair value based method of accounting for stock-based compensation arrangements under which compensation cost is determined using the fair value of stock-based compensation determined as of the date of grant and is recognized over the periods in which the related services are rendered. The statement also permits companies to elect to continue using the current implicit value accounting method specified in Accounting Principles Bulletin (APB) Opinion No. 25, Accounting for Stock Issued to Employees, to account for stock-based compensation.
 
 The Company determined that it will not change to the fair value method and will continue to use the implicit value based method for stock options issued to employees and has disclosed the pro forma effect of using the fair value based method to account for its stock-based compensation.
 
 The FASB released Interpretation No.44, "Accounting for Certain Transactions Involving Stock Compensation. This Interpretation addresses certain practice issues related to APB Opinion No.25. The provisions of this Interpretation shall be applied to new awards, exchanges of awards in business combinations, modifications to an outstanding award, and exchanges in grantee status that occur.
 
 The Company did not issue any options or warrants to employees or consultants during the nine months ended September 30, 2004 and 2003.
 ****
 ****
 15
 **1.**  **Summary of Significant Accounting Policies (continued)**
 
 Comprehensive Income (Loss)
 
 Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130) established standards for reporting and display of comprehensive income (loss) and its components in a full set of general-purpose financial statements. Comprehensive income consists of net income and unrealized gains (losses) on available-for-sale securities; foreign currency translation adjustments; changes in market values of future contracts that qualify as a hedge; and negative equity adjustments recognized in accordance with SFAS No. 87. The Company, however, does not have any components of comprehensive income (loss) as defined by SFAS 130 and therefore, for the nine months ended September 30, 2004 and 2003, comprehensive loss is equivalent to the Companys net loss.
 
 
 Long-Lived Assets
 
 In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, the Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated discounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.
 
 
 Advertising Costs
 
 The Company expenses advertising and marketing costs as they are incurred. The Company did not incur any advertising costs for the nine months ended September 30, 2004 and 2003.
 
 
 Reclassifications
 
 Certain amounts in the 2003 financial statements have been reclassified to conform to the 2004 presentations. These reclassifications had no effect on previously reported results of operations or retained earnings.
 
 
  See accompanying notes to these financial statements.16 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **1.**  **Summary of Significant Accounting Policies (continued)**
 
 Segment and Geographic Information
 
 The FASB issued SFAS No. 131 on Disclosures about Segments of an Enterprise and Related Information effective in 1998. SFAS 131 requires enterprises to report information about operating segments in annual financial statements and selected information about reportable segments in interim financial reports issued to shareholders, on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. It also established standards for related disclosures about products and services, geographic areas and major customers.
 
 The Company managed its operations through two business segments: professional employment organization and pharmacy operations. The Company entered the professional employment business as a result of the Entremetrix, Inc., acquisition in March 2003. However, the Company sold Entremetrix, Inc., back to its original shareholder in February 2004.
 
 The  Company had evaluated  performance  based  on  net  operating  profit. The  operating  segments  do  not  share  staff  or  facilities. Payroll  services  were  provided  by Entremetrix, Inc., to the pharmacy business unit. The  costs  of  operating  each segment  are  captured  discretely  within  each  segment. The  Companys  property  and  equipment,  inventory,  and  accounts  receivable  are  captured  and  reported  discretely  within e ach  operating  segment.
 
 The operating results of Entremetrix, Inc. are shown as discontinued operations in the financial statements. Due to the sale of Entremetrix, Inc. the Company operates in only one segment.
 
 
 Other Accounting Pronouncements
 
 In December 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB 104 supersedes SAB 101, Revenue Recognition in Consolidated Financial Statements. SAB 104s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superseded as a result of the issuance of EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. Additionally, SAB 104 rescinds the SECs Revenue Recognition in Consolidated Financial Statements Frequently Asked Questions and Answers (the FAQ) issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104, which was effective upon issuance. The adoption of SAB 104 did not impact the consolidated financial statements.
 
 
  See accompanying notes to these financial statements.17 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **2.**  **Going Concern**
 
 The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has experienced net losses of $1,061,598 and $880,325 for the nine months ended September 30, 2004 and 2003, respectively. The Company also had a net working deficit of $1,165,296 for the nine months ended September 30, 2004. Additionally, the Company must raise additional capital to meet its working capital needs. If the Company is unable to raise sufficient capital to fund its operations, it might be required to discontinue its pharmacy operations. These factors raise substantial doubt about the Companys ability to continue as a going concern. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Companys ability to generate sufficient sales volume to cover its operating expenses and to raise sufficient capital to meet its payment obligations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
 
 Management raised an additional $650,000 in debt financing in May 2004, and the Company has previously relied on equity financing sources and debt offerings to fund operations. The Company's reliance on equity and debt financing will continue, and the Company will continue to seek to enter into strategic acquisitions.
 
 
 
 **3.**  **Acquisition of Sespe Pharmacy**
 
 Effective January 26, 2003, the Company concluded its agreement to purchase all the tangible and intangible assets of Sespe Pharmacy, a privately held company, for a total cost of $181,068.
 
 The acquisition was recorded using the purchase method of accounting. Accordingly, the purchase price has been allocated to the assets acquired based on the estimated fair values at the date of acquisition. The operating results of this acquisition are included in the Companys Consolidated Results of Operations from the date of acquisition.
 
 The following table presents the allocation of the purchase price, including related acquisition costs, to the assets and liabilities acquired:
 
 Inventory
$
81,068Property and equipment

100,000Total purchase price
$
181,068 
  See accompanying notes to these financial statements.18 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **4.**  **Accounts Receivable - Trade**
 
 In 2004 and 2003, approximately 92% and 91% of net revenues of continuing operations were derived under federal, state and local third-party reimbursement programs. These revenues are based, in part, on cost reimbursement principles and are subject to audit and retroactive adjustment by the respective third-party fiscal intermediaries. In the opinion of management, retroactive adjustments, if any would not be material to the financial position, results of operations or cash flows of the Company.
 
 The Company provides an allowance for doubtful accounts based upon its estimation of uncollectible accounts. The Company bases this estimate on historical collection experience and a review of the current status of trade accounts receivable. Management determined that no allowance for doubtful accounts was needed as of September 30, 2004.
 
 The operations of Classic Care ceased in January 2003, and the DHS informed the Company in December 2002 that Medi-CAL was withholding a 100% of its payments and Classic Cares Medi-CAL license was being suspended. Accordingly, the Company has fully reserved the accounts receivable balance as of September 30, 2004 and December 31, 2003 attributable to Classic Care. Receivables attributable to Classic Care are a component of net discontinued liabilities. It is reasonably possible that the Companys estimate of the allowance for doubtful accounts for Classic Care may change. The Company is continuing to have discussions with the DHS regarding this matter.
 
 
 
 **5.**  **Common Stock Transactions**
 
 The common stock transactions during the nine months ended September 30, 2004 were as follows:
 
 ·
The Company converted $539,341 in notes payable and related interest into 16,431,518 shares of its common stock. 
 ·
The Company issued 3,955,000 shares of its common stock with a market value of $657,250 for consulting services provided to the Company. 
 ·
The Company converted warrants issued to note holders into 2,200,000 shares of its common stock for $132,000. 
 ·
The Company issued 2,197,727 shares of its common stock to its CEO for current and prior year compensation totaling $391,750. 
 ·
The Company retired 1,250,000 shares of its common stock as result of the sale of entreMetrix, Inc. back to its original shareholder. 
 
  See accompanying notes to these financial statements.19 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **5.**  **Common Stock Transactions (continued)**
 
 The common stock transactions during the nine months ended September 30, 2003 were as follows:
 
 ·
On February 7, 2003, a holder of the Companys 8% convertible debentures elected to convert an aggregate of $1,776 principal amount of the debentures and $324 of related interest into 15,000 shares of the Companys common stock on March 21, 2003. 
 ·
During the period ending September 30, 2003, the Company issued 363,733 shares of its common stock to various consultants in lieu of cash payments for services rendered. The aggregate value of services was $126,444. 
 ·
The Company issued 700,000 shares of its common stock under the terms of the 2003 Legal and Consulting Services Plan. The common stock issued had an approximate market value of $196,000. 
 ·
The Company issued 1,250,000 shares of its common stock, which had an approximate market value of $250,000, in connection with the acquisition of entreMetrix, Inc. 
 
 Authorization to Effect a Reverse Stock Split
 
 On March 28, 2003, the Company obtained a written consent of a majority of its shareholders to amend the Certificate of Incorporation to effect up to a one-for-200 reverse split of common stock. The exchange ratio was approved by the Board of Directors. The exchange ratio was one newly issued share for each two hundred shares of common stock. As per a Board of Directors resolution, this Amendment will have no effect on the par value of the common stock, which will remain at $0.001. The reverse stock split was effective August 25, 2003.
 
 Pursuant to the Reverse Stock Split, each holder of shares of Common Stock (the "Old Common Stock") immediately prior to the effectiveness of the Reverse Stock Split will become the holder of fewer shares of Common Stock (the "New Common Stock") after consummation of the Reverse Stock Split. Although the Reverse Stock Split, will not, by itself, impact the Company's assets or properties, the Reverse Stock Split could result in a decrease in the Company's aggregate market value. The Reverse Stock Split will not result in some stockholders owning "odd-lots. All fractional share holdings shall be rounded up to whole shares. For example, if a shareholder owns 350 shares of Old Common Stock, after a 1 for 200 Reverse Stock Split, that shareholder will now own 2 shares of New Common Stock, not 1 3/4 shares of New Common Stock.
 
 Based on approximately 898,484,863 shares of Common Stock issued and outstanding as of August 25, 2003, the following table reflects a range of the approximate percentage reduction in the outstanding shares of Common Stock and the approximate number of shares of Common Stock that are outstanding as a result of the Reverse Stock Split (not accounting for any proposed increase in authorized shares as described above):
  Reverse

Percentage

Shares To BeStock Split

Reduction

Outstanding1 for 200

99.5%

4,492,425 
 ****
 20
 **5.**  **Common Stock Transactions (continued)**
 
 Authorization to Effect a Reverse Stock Split (continued)
 
 All outstanding options, warrants, rights and convertible securities were appropriately adjusted for the Reverse Stock Split automatically on the effective date of the Reverse Stock Split. The Reverse Stock Split affects all stockholders equally and does not affect any stockholder's proportionate equity interest in the Company except for those stockholders whose fractional shares will be rounded up.
 
 None of the rights currently accruing to holders of the Common Stock, options or warrants to purchase Common Stock or securities convertible into Common Stock are affected by the Reverse Stock Split. Following the Reverse Stock Split, each share of New Common Stock entitles the holder thereof to one vote per share and will otherwise be identical to one share of the Old Common Stock.
 
 The percentage ownership of management, the number of stockholders or any aspect of the Company's business has not changed materially because of the Reverse Stock Split.
 
 
 2003 Consulting and Legal Services Plan
 
 In March 2003, the Board of Directors approved the 2003 Consulting and Legal Services Plan. The purpose of the 2003 Consulting and Legal Services Plan (Plan) is to provide the Company with a means of compensating selected key consultants and legal service providers to the Company and its subsidiaries for their services rendered with shares of Common Stock of the Company. The Plan will be administered by the Companys Board of Directors (the Board). The Companys Board shall (a) select consultant(s) and/or legal service provider(s) to whom shares of the Companys Common Stock shall be awarded or sold, and (b) determine the number of shares to be awarded or sold; the time or times at which shares shall be awarded or sold; whether the shares to be awarded or sold will be registered with the Securities and Exchange Commission; and such conditions, rights of repurchase, rights of first refusal or other transfer restrictions as the Board may determine. Each award or sale of shares under the Plan may or may not be evidenced by a written agreement between the Company and the persons to whom shares of the Companys Common Stock are awarded or sold. From time to time, the Board may make such changes in or additions to the Plan as it may deem proper and in the best interests of the Company and its Stockholders. The Board may also suspend or terminate the Plan at any time, without notice, and in its sole discretion.
 
 For purposes of the Plan, the Board of Directors is authorized to sell or award up to 700,000 shares and/or options of the Companys Common Stock at $0.001 par value per share (Common Stock).
 
 All key consultants and qualified legal service providers to the Company and any of its subsidiaries are eligible to participate in the Plan.
 
 The Board approved the issuance of 700,000 shares to various consultants under the terms of the Plan.
 
 
 
  See accompanying notes to these financial statements.21 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **6.**  **Related Party Transactions**
 
 The following transactions occurred between the Company and certain related parties:
 
 *Richard McKinley*
 
 Richard McKinley, President of Entremetrix, advanced $82,000 to Entremetrix in 2003.
 
 
 
 **7.**  **Property and Equipment**
 
 Property and equipment at September 30, 2004 and December 31, 2003 consisted of the following:
 
 2004

2003Furniture and fixtures
$
85,000

$
85,000Automobiles

14,712


-Leasehold improvements

-


-Computers and equipment

21,144


21,144120,856


106,144Less accumulated depreciation and amortization

(44,445)


(22,731)Total
$
76,411

$
83,413 
 
 Depreciation and amortization expense for the nine months ended September 30, 2004 and 2003 was $21,714 and $36,863, respectively.
 
 
 
 **8.**  **Accounts Payable and Accrued Expenses**
 
 Accounts payable and accrued expenses at September 30, 2004 and December 31, 2003 consisted of the following:
 
 
 September 30, 2004

December 31, 2003Accounts payable
$
121,907

$
168,811Accrued professional and related fees

660


134,250Accrued compensation and related payroll taxes

17,699


327,581Other accrued expenses

-


7,049Reserve for litigation

205,243


205,243Total
$
345,509


842,934  See accompanying notes to these financial statements.22 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **9.**  **Other Receivables**
 
 The Company has transferred to another pharmacy a portion of its pharmaceuticals inventory amounting to $415,157. The Company has recorded a valuation allowance of $300,000 for this receivable in 2002. The Company transferred its inventory to another pharmacy which was taking over the long-term care business of Classic Care. Management transferred inventory to assist the new pharmacy during the transition and to minimize any disruption to the patients. The Company is continuing its efforts to collect this receivable (including legal options), and based on its efforts the valuation allowance is considered to be reasonable.
 
 
 
 **10.**  **Convertible Notes Payable and Debentures**
 
 Convertible debentures consist of the following at September 30, 2004:
 
 8% convertible subordinated debentures, due in May 2006, convertible into shares of common stock at any time prior to maturity. Interest is payable quarterly, and principal is due at maturity.
$
650,0008% convertible subordinated debentures, originally due in October 2002 and now on demand, convertible into shares of common stock at any time prior to maturity. Interest is payable quarterly, and principal is due at maturity.

26,6508% convertible subordinated debentures, due in December 2005, convertible into shares of common stock at any time prior to maturity. Interest is payable quarterly, and principal is due at maturity.

320,0008% convertible subordinated debentures, due on demand, convertible into shares of common stock at any time. Interest is payable quarterly, and principal is due at maturity.

356,5761,353,226Less: Unamortized Discount

(426,805)Total debt

926,421Less: current portion

(383,226)Convertible debentures, less current portion
$
543,195 
  See accompanying notes to these financial statements.23 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  **10.**  **Convertible Notes Payable and Debentures (continued)**
 
 In May 2004, the Company concluded debt financing for $650,000, whereby the following 8% convertible debentures were issued: $350,000 to Alpha Capital Aktiengesellschaft; $200,000 to Gamma Opportunity Capital Partners, LP; and $100,000 to Longview Fund, LP. Additionally, in conjunction with these convertible debentures, the Company issued detachable warrants to purchase 4,444,444 shares of common stock in conjunction with the convertible notes. The exercise price of the warrants is $0.17 per share, and the warrants mature in five years.
 
 The conversion price per share of the above debentures shall be equal to the lesser of (i) $.09 or (ii) eighty-five (85%) of the average of the closing bid prices for the fifteen (15) trading days prior to but not including the Conversion Date for the Common Stock. Closing bid price shall mean the last closing bid price as reported by Bloomberg LP. The Conversion Price shall be $.09 per share unless at any time after the closing price of the Common Stock as reported by Bloomberg LP for the Principal Market is less than $0.09 per share for fifteen (15) consecutive trading days.
 
 Total funds received of $650,000 were allocated $312,108 to the 8% convertible notes, $240,834 to the note warrants and $97,059 to the beneficial conversion feature. The value allocated to the note warrants and the beneficial conversion feature are being amortized to interest expense over the term of the notes.
 
 
 Gain on Extinguishment of Notes Payable
 
 In September 2004, the Company wrote off 10% notes payable with a principal balance of $71,000 and related interest of $36,742. The note holders are not currently in business. These notes were over five years old and the Company has not been contacted by the note holders regarding payment for over five years. The Company engaged its counsel to contact these note holders to resolve these outstanding amounts. Through these efforts to contact the note holders, the Company learned that the note holder had filed for bankruptcy, and is no longer in business. The Companys counsel further advised that the Company is no longer liable for these amounts. Thus, the Company recorded a gain of $107,742 on the extinguishment of these notes, and is included in the Statement of Operations for three and nine months ended September 30, 2004.
 
 
 **11.**  **Income Taxes**
 
 At September 30, 2003, the Company has available approximately $26,500,000 and $10,476,415 in Federal and State net operating loss carryforwards available to offset future federal and state income taxes, respectively, which begin to expire in 2022.
 
 Tax rules impose limitations on the use of net operating losses following certain changes in ownership. Such a change occurred in 1999 and 2000, which will limit the utilization of the net operating losses in subsequent years.
 
 
 
  See accompanying notes to these financial statements.24 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  
 **12.**  **Commitments and Contingencies**
 
 Litigation
 
 *Department of Health Services*
 
 The Company is a provider of services under Californias Medicaid program (Medi-Cal), which is administered by the Department of Health Services (DHS). DHS served notice to the Company that the Company received overpayment of claims submitted by the Company for certain drugs, based on alleged violations of the California Code of Regulations. The Company has provided documentary evidence to contest and rebut DHSs allegations and received an extension to provide evidence to the contrary. In December 2002, DHS informed the Company that it was suspending Classic Cares Medi-Cal license, and that it was withholding all further payments until its investigation is complete. Classic Care could not successfully operate without a Medi-Cal license. Thus, the Company has decided to cease operations of Classic Care. Management has fully reserved the accounts receivable balance regarding these allegations.
 
 Additionally, DHS has alleged that Classic Care was overpaid in 1998, 1999 and 2000, and has requested a refund. The Company believes that all reimbursements received were appropriate, and management believes that it does not have a liability to the DHS. The Company has consulted with its general counsel and other outside counsel regarding the claims made by DHS, and the Company does not believe it is reasonably liable for any amounts pursuant to the DHS allegations.
 
 Except as otherwise specifically indicated above, management believes that the Company does not have any material liability for any lawsuits, settlements, judgments, or fees of defense counsel which have not been paid or accrued as of September 30, 2004. However, there can be no assurance that the Company will prevail in the above proceedings. In addition, the Company may be required to continue to defend itself resulting in substantial additional expense. In the event the Company is unable to pay the defense costs associated with the foregoing, an unfavorable settlement or judgment could be awarded against the Company, which might have a material adverse effect upon the Company.
 
 
 *Company Is in Dispute with a Vendor*
 
 The Company is in dispute over the amounts due this vendor for purchases of pharmaceuticals in 2001 and 2002 by its subsidiary, Classic Care, in the approximate amount of $550,000. The Vendor has filed a lawsuit naming the Company as a defendant. The Company with the advice of its counsel has evaluated these claims and is vigorously defending itself in this litigation. The Company believes that adequate provision has been made in the 2003 financial statements for any liability.
 
 
  See accompanying notes to these financial statements.25 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  
 **12.**  **Commitments and Contingencies (continued)**
 
 Leases
 
 *Operating leases*
 
 In June of 2002, the Company leased a 7,334-square-foot building located at 8135 Clybourne Ave, Sun Valley, CA 91352, to serve as their corporate headquarters and storage facility. The lease is for a period of two years, ending June 2004, with monthly lease payments of $3,420. The Company subleases on a month-to-month basis approximately one half of the facility to Digital Media Group, Inc, a related company that is owned by the Companys CEO and Chairman, Steve Westlund. The Company vacated this facility in March 2004.
 
 In January 2003, the Company entered into an operating lease agreement for a pharmacy in Fillmore, California. The pharmacy facility is approximately 835 square feet. Payments under the lease will be $1,170 per month, and will commence on January 26, 2003, and will continue through the initial lease term of five years. The Company has options to renew the lease for two five-year periods and to purchase the facility at its estimated fair market value at any time during the lease term.
 
 Rent expense for the nine months ended September 30, 2004 and 2003, was $32,770 and $40,853 respectively.
 
 Entremetrix leased offices located at 18662 MacArthur Boulevard, Floor 2, Irvine, CA under a non-cancelable operating lease agreement that required a monthly rental payment of $630. This lease expired in December 2002. The company continued to lease on a month-to-month basis through March 2003.
 
 Entremetrix relocated its offices to 18101 Von Karman Avenue, Irvine, CA. The offices are leased under a non-cancelable operating lease agreement that requires a monthly rental payment of $3,600. This lease term runs from April 2003 through March 2004.
 
 The Company is not obligated for the Entremetrix facilities lease due to the sale of Entremetrix in February 2004.
 
 
 ***Capital leases***
 
 The Company had maintained capital leases for some of its medical equipment and certain autos. All assets under capital leases were directly related to the operations of Classic. Due to the closure of Classic Care, Inc., all amounts due under capital lease have been reclassified as current. The Companys management is negotiating with the lessors regarding the outstanding amounts.
 
 
  See accompanying notes to these financial statements.26 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  
 **12.**  **Commitments and Contingencies (continued)**
 
 Employment Agreements
 
 *Chief Executive Officer Compensation*
 
 On April 1, 2000, Mr. Westlund signed a three-year employment agreement. The contract calls for Mr. Westlund to be paid a base salary of $8,333 per month for the first year of the term. Mr. Westlunds base salary was to increase 15% per year for each of the second and third years per this agreement.
 
 Although Mr. Westlunds employment agreement states that his salary is to be $8,333 per month, his actual pay has been $4,000 per month. Mr. Westlund is entitled to be paid the balance of his monthly compensation in either cash or equity. Additionally, Mr. Westlund has been granted an option to purchase up to 30,000 shares of Kaire common stock over the next 5 years at an option price of $0.05 per share. To date, Mr. Westlund has exercised options to purchase 29,833 shares of common stock.
 
 In 2004, Mr. Westlund was issued 2,197,727 shares of the Companys common stock valued at $391,750 in lieu of the total amount due to him under the above compensation agreement. The Company has accrued $17,699 for Mr. Westlunds compensation as of September 30, 2004.
 
 
 
 **13.**  **Stock Options and Warrants**
 
 The Company has adopted the provisions of Financial Interpretation No. 44. Accordingly, the Company applies APB Opinion No. 25 and related interpretations in accounting for its plans for employees. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for awards under this plan consistent with the methodology prescribed by SFAS No. 123, the Company's net loss and loss per share would be reduced to the pro forma amounts indicated below for the nine months ended:
 
 September 30, 2004

September 30, 2003Net lossAs reported
$
(1,061,598)

$
(880,324)Pro forma
$
(1,061,598)

$
(880,324)Basic and diluted loss per common shareAs reported:Continuing operations
$
(0.00)

$
(0.03)Discontinued operations
$
(0.00)

$
(0.01)Total
$
(0.00)

$
(0.04)Pro forma:Continuing operations
$
(0.00)

$
(0.03)Discontinued operations
$
(0.00)

$
(0.01)Total
$
(0.00)

$
(0.04) 
 
  See accompanying notes to these financial statements.27 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  
 **13.**  **Stock Options and Warrants (continued)**
 
 The following table summarizes information with respect to stock options outstanding and exercisable at September 30, 2004:
 
 Options Outstanding

Options ExercisableRange of Exercise
Prices

Number
Outstanding as of September 30, 2004

Weighted
Average
Remaining Contractual Life

Weighted
Average
Exercise
Price

Number Exercisable as of September 30, 2004

Weighted
Average
Exercise
Price$10.00

10,167

0.71

$
10.00

10,167

$
10.00 
 
 
 **14.**  **Earnings per Share**
 
 Earnings (loss) per share (EPS) have been calculated using the weighted average number of shares outstanding during each period. Earnings per share-dilutive does not include the effect of potentially dilutive securities for the nine months ended September 30, 2004 and 2003 respectively. The loss from operations and the net loss for the nine months ended September 30, 2004 and 2003 make these securities anti-dilutive.
 
 Effective August 25, 2003, the Company concluded a reverse split at a ratio of 1-for-200. All EPS calculations and shares issued were retroactively adjusted to reflect the reverse stock split.
 
 
 
 **15.**  **Discontinued Operations - Classic Care, Inc.**
 
 In December 2002, the Company decided to discontinue all operations  at  its  Classic Care subsidiary,  a  pharmacy, and conduct a voluntary dissolution of Classic Care. The final dissolution date of Classic Care was May 2003. The results of Classic Cares operations have been reported separately as discontinued operations in the Statements of Operations.
 
  See accompanying notes to these financial statements.28 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  
 **15.**  **Discontinued Operations - Classic Care, Inc.**
 
 The  net  assets (liabilities)  of  the  discontinued  operations  have  been  recorded  at  their  estimated  net  realizable  value  under  the  caption  Net  assets (liabilities)  of  discontinued  operations - Classic Care  in  the  accompanying  Balance  Sheets  at  September 30, 2004,  and  December 31, 2003,  and  consist  of  the  following:
 
 Accounts receivable, net
$
-Inventories

-Property and equipment, net

-Other assets

-Total assets

-Accounts payable

(685,050)Accrued liabilities

(13,766)Capital leases

-Notes payable - related parties

-Total liabilities

(698,816)Net assets (liabilities) of discontinued operations
$
(698,816) 
 
 
 **16.**  **Acquisition and Disposition of Entremetrix, Inc.**
 
 Acquisition of Entremetrix, Inc *.*
 
 In March 2003, the Company through its subsidiary completed the acquisition of all the outstanding common shares of Entremetrix, Inc., a Nevada corporation, for $2,750,000. The agreed purchase price consisted of (i) a 4% promissory note in the amount of $2.5 million due four years after closing, and (ii) the issuance of 1,250,000 shares of the Companys common stock having a market value of approximately $250,000.
 
 Entremetrix is a Southern California-based company, and is a national provider of administrative employer and financial support services to small businesses primarily operating in the medical, life sciences and high-technology industries. Additionally, Entremetrix provides outsourced human resources and financial support staff. The acquisition was accounted for under the purchase method, whereby the purchase price was allocated to the underlying assets and liabilities based on their estimated fair values. The resulting goodwill from this transaction was estimated at $2,906,985. Entremetrix had commenced operations in July 2002.
  See accompanying notes to these financial statements.29 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  
 **16.**  **Acquisition and Disposition of Entremetrix, Inc. (continued)**
 
 The following table presents the allocation of the acquisition cost, including professional fees and other related acquisition costs, to the assets acquired and liabilities assumed:
 
 Cash and cash equivalents
$
27,576Accounts receivable

958Other current assets

134,608Property and equipment

51,323Goodwill

2,906,985Other non-current assets

645Total assets
$
3,122,095Accounts payable and accrued expenses
$
262,620Notes payable

109,475Total liabilities
$
372,095Total acquisition cost
$
2,750,000 
 
 The pro forma consolidated results of operations have not been presented as if the acquisition of Entremetrix, Inc. had occurred at January 1, 2003, due to the sale of Entremetrix back to its original shareholder in February 2004. The pro forma information is not meaningful due to the sale of Entremetrix, and the Company is not pursuing any future business opportunities in the professional employment line.
 
 
 Sale of entreMetrix, Inc.
 
 In January 2004,  the  Company  determined  to  discontinue  operations  of entreMetrix, Inc., its professional employment business  division  and  sold entreMetrix, Inc., back to its original owner.  On  February 25,  2004,  the  Company  completed  the  sale  of  entreMetrix, which was in essence a recession of the original purchase. The Company received back the shares, 1,250,000 shares of its common stock, it had issued to the original shareholder and the note payable to the shareholder in the amount of $2,500,000 plus all accrued interest to date was cancelled. The results of operations of Entremetrix have been reported separately as discontinued operations.
 
 The  assets  sold  consisted  primarily  of  accounts  receivable,  deposits,  property  and  equipment,  and  other  assets.  The  buyer  also  assumed  all  accounts  payable  and  accrued  liabilities.
  See accompanying notes to these financial statements.30 **Kaire Holdings Incorporated**
**and Subsidiaries**
**Notes to Consolidated Financial Statements**
**September 30, 2004**  
 **16.**  **Acquisition and Disposition of Entremetrix, Inc. (continued)**
 
 Sale of entreMetrix, Inc. (continued)
 
 Actual operating losses of entreMetrix during the period from January 1, 2004, through February 25, 2004, were $55,287, and the gain on the sale of entreMetrix is estimated to be $276,848 (net of income taxes of $0). Accordingly, the accompanying Statement of Operations for the nine-month period ending September 30, 2004 includes a gain of $221,561.
 
 Liabilities
$
156,985Accrued interest on note payable

53,836Note Payable

2,500,000Value of common stock

250,000Other

223,012Total
$
3,183,833Less: Investment in entreMetrix

2,906,985Gain on Sale of entreMetrix, Inc.
$
276,848 
 Entremetrixs revenues for the period starting January 1, 2004 to February 25, 2004, and for the period starting March 17, 2003 (date of acquisition) to March 31, 2003, were $25,860 and $9,256, respectively.
 
 The following is a summary of the assets and liabilities at February 25, 2004:
 
 February 25, 2004Assets:Accounts receivable
$
58,932Deposits

40,582Property and equipment, net

48,221Other assets

4,650Total assets
$
152,385Liabilities:Accounts payable
$
90,740Notes payable

192,646Accrued liabilities

252,726Total liabilities
$
536,112Net liabilities of discontinued operations
$
383,727 
 
 
 
   See accompanying notes to these financial statements.31 **Kaire Holdings Incorporated**
**and Subsidiaries**
**September 30, 2004**   
 **Item 2. Management's Discussion and Analysis or Plan of Operation**
 
 
 Plan of Operation
 
 Our plan of operation continues to focus on expanding our core pharmacy care business , which specializes on providing services to chronic patients in Residential Board & Care and Skilled Nursing facilities. This includes broadening the range of services and content of our existing facility programs, expanding the market share of our existing programs as well as developing additional revenue channels and growth opportunities for our existing programs.
 
 Short Terms Goals
 
 During the next six months the Company intends to become profitable on an operational cash flow basis. This will be accomplished by continuing increase gross sales month after month while enhancing operational efficiencies and maximizing gross margins.
 
 Long Term Goals
 
 During the next 36 months the Company intends to expand sales and marketing activities to national levels followed by the introduction of a national scale mail order prescription program targeting specific chronic patient conditions which will be supported by a an internet based health information network.
 
 **Results of Operations**
 
 Three and nine Months Ended September 30, 2004 Compared to September 30, 2003
 
 Revenues
 For the three and nine-months ended September 30, 2004, revenues were approximately $641,103 and $1,738,475 respectively, for an increase of $318,051 and $890,395 respectively for the same periods in 2003. The increase in sales is the result of an increase in the sales of prescription drugs, nutrition products and incontinence supplies due to an increase in our long-term care business in 2004 versus 2003. Through our sales efforts in 2004, we have increased the number of facilities we serve in Southern California.
 
 Cost of Goods Sold
 
 Cost of goods sold for the three and nine-month period ending September 30, 2004 was $483,993 and $1,325,423 respectively, for an increase of $247,777 and $705,655 over the same periods in 2003. This increase is a direct result of the increase is sales.
 
 Gross Profit
 
 Gross profit for products and services was $157,110 and $413,052 for the three and nine months ended September 30, 2004, an increase of $ 70,274 for the three-month period and an increase of $ 184,740 over the prior nine-month period. The gross profit margin for the three and nine months ended September 30, 2004 was 24.5% and 23.8% respectively.
 
 32
 Operating Expenses
 
 Operating expenses for the three and nine month period ended September 30, 2004 were $306,013 and $1,482,361 respectively for an increase of $116,480 and $590,082 from the same period prior year. The $590,082 increase in expenses is mainly attributable to a $381,320 increase in consulting services, plus an increase of $27,968 in marketing expenses which is a result of putting together sales brochures and holding seminars for facilities, an increase of $22,012 in automobile expense, an increase in legal expenses of $38,902 as a result of the H.D. Smith lawsuit, an increase of $161,411 in Salaries as a result of having an extra pharmacist for most of the year, plus an increase in selling expense of $15,092 offset by decreases in depreciation expense of $15,149, a decrease in rent expense of $8,083, a decrease in accounting fees of $30,796 with the remaining decrease of $1,077 being made up of miscellaneous items. We continue to employ consultants to provide strategic advice.
 
 Interest Expense
 
 Interest expense the three and nine month period ended September 30, 2004 was $83,901 and $331,701 respectively for an increase of $40,215 and $211,396 for the comparable three and nine month period prior year. The increase is a result of the increase accrued on the convertible debt issued in December 2003 and April 2004.
 
 Federal Income Tax
 
 No provision was made for Federal income tax since the Company has incurred significant net operating losses from inception. Through September 30, 2004, the Company incurred a net operating loss for tax purposes of approximately $1,283,159. The net operating loss carry forward may be used to reduce taxable income through the year 2014. The Company's tax returns have not been audited by the Internal Revenue Service. The carry forward amounts may therefore be subject to audit and adjustment. As a result of the Tax Reform Act, the availability of net operating loss carry forwards can be deferred, reduced or eliminated under certain circumstances. Due to uncertainty regarding the realization of our deferred tax assets, we have recorded a full valuation.
 
 Liquidity and Capital Resources
 
 Historically, Company revenues have been insufficient to cover operations. Consequently, the Company has relied in part on private placements of common stock securities, bank debt, loans from private investors and the exercise of common stock warrants to meet operational needs. However, with revenue growing in each of the last 18 months, we believe that in the coming months there will be sufficient working capital generated from sales to cover operational needs thereby reducing or eliminating the Companys reliance on private placements of common stock securities, bank debt and loans from private investors to meet operational needs.
 
 In the event that revenue growth does not meet expectations, the Company may again need to seek working capital from its normal sources. Historically, the Company has been successful in its efforts to secure working capital from private placements of common stock securities, bank debt, loans from private investors and the exercise of warrants for common stock. However, there can be no assurances that private or other capital will continue to be available, to meet the Companys cash needs, or that a sufficient amount of the Companys common stock or other securities can or will be sold or that any common stock purchase options/warrants will be exercised to fund the operating needs of the Company.
 
 33
 
 On September 30, 2004 the Company had assets of $695,559 compared to $510,333 on December 31, 2003, an increase of $185,226. The increase mainly consists of increases in receivables of $195,900 and inventory of $60,885 offset by a $39,930 decrease in advances to shareholders, a decrease of $29,239 in discontinued operation assets and a decrease in other items netting to $2,390.
 
 As of September 30, 2004 the Companys working deficit decreased $1,201,259 from $2,366,555 at December 31, 2003 to $1,165,296. This decrease is primarily a result of the conversion of $485,341 in the current portion of convertible debt, a decrease in account payable and accrued expenses of $497,425, a decrease in loans payable of $68,384, an increase of $88,622 in advances from shareholders, a decrease in income taxes payable of $13,853 and a decrease in accrued interest payable of $31,985 and a decrease of $665 in notes payable - related parties plus the increase in current assets of $192,228. We were able to convert amounts due to our CEO for prior compensation into shares of our common stock.
 
 Net non-cash items affecting operating activities for the nine months ended September 30, 2004 amounted to $537,365 which mainly consisted of the net loss of the nine month period of $1,061,598 plus the following: 1) the gain on the sale of EntreMetrix of $276,848, 2) the gain on extinguishment of notes payable and related interest of $107,742, 3) the decrease of miscellaneous other items of $31,716, **offset by the following** 1) the change in assets and liabilities from discontinued operations of $29,239, 2) the loss from operations of discontinued operations of $55,287, 3) common stock issued for professional services and compensation of $648,785, 4) amortization of warrant and beneficial conversion feature of $185,514, and deprecation and amortization of $21,714.
 
 Net cash used by operating activities for the nine months ending September 30, 2004 amounted to $785,983, consisting of: 1) the increase of accounts receivable of $195,900, 2) the increase of other receivables and assets of $3,960, 3) the decrease in inventories of $60,885 and 4) the increase of accrued interest on convertible notes of $84,673, **offset by the following** 1) the decrease in shareholder advances of $39,930, 2) decrease in prepaid expenses of $226, 3)decrease in income and sales tax payable of $15,507, and 4) the decrease in account payable and accrued expenses of $97,195.
 
 Net cash used by investing activities amounted to $14,712, which consisted of the purchase of a delivery vehicle.
 
 Net cash generated by financing activities amounted to $801,573, consisting primarily of a $650,000 increase in convertible notes payable and an increase of $208,622 in notes payable to shareholders, offset by $188,384 in payments on loans.
 ****
 Going Concern
 
 The accompanying financial statements have been prepared in conformity with generally accepted accounting
 principles, which contemplate continuation of the Company as a going concern. However, the Company has
 experienced net losses of $1,061,598 and $880,325 for the nine months ended September 30, 2004 and 2003,
 respectively. The Company also had a net working deficit of $1,165,296 for the nine months ended September 30, 2004. Additionally, the Company must raise additional capital to meet its working capital needs. If the Company is unable to raise sufficient capital to fund its operations, it might be required to discontinue its pharmacy operations. These factors raise substantial doubt about the Companys ability to continue as a going concern. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Companys ability to generate sufficient sales volume to cover its operating expenses and to raise sufficient capital to meet its payment obligations. The financial statements do not include any adjustments relating to the recoverability
 and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. Management raised an additional $650,000 in debt financing in May 2004, and the Company has previously relied on equity financing sources and debt offerings to fund operations. The Company's reliance on equity and debt financing will continue, and the Company will continue to seek to enter into strategic acquisitions.
 
 34
 April 2004 Private Placement
 
 On April 22, 2004, KAIH entered into a Subscription Agreement for $650,000 whereby we issued the following 8% three year convertible debentures; $350,000 to Alpha Capital Aktiengesellschaft, $200,000 to Gamma Opportunity Capital Partners, LP and $100,000 to Longview Fund, LP Additionally, in conjunction with these convertible debentures, KAIH issued warrants to purchase KAIH common stock to Alpha Capital Aktiengesellschaft (1,944,444 shares), Gamma Opportunity Capital Partners, LP, (1,111,111 shares), Longview Fund, LP (555,556 shares) and Bi-Coastal Consulting Corporation (833,333 shares). The transaction closed on May 5, 2004.
 
 The conversion price per share of the above debentures shall be equal to the lesser of (i) $.09 or (ii) eighty-five (85%) of the average of the closing bid prices for the fifteen (15) trading days prior to but not including the Conversion Date for the Common Stock. Closing bid price shall mean the last closing bid price as reported by Bloomberg L.P. The Conversion Price shall be $.09 unless at any time after the closing price of the Common Stock as reported by Bloomberg L.P. for the Principal Market is less than $0.09 for fifteen (15) consecutive trading days.
 The exercise price of the warrants is $0.17 and they mature in five years.
 This placement was submitted for registration via form SB2 on June 21, 2004. We are in the process of responding to comments received from the Securities Exchange Commission.
 
 
 **ITEM 3. CONTROLS AND PROCEDURES**
 
 Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were (1) designed to ensure that material information relating to Kaire Holdings, Incorporated, including our consolidated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.
 
 There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control over financial reporting performed during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
 35
 **P** **ART II. OTHER INFORMATION**
 
 **Item 1.**  **Legal Proceedings**
 
 Patent Claim
 
 In 2003, an individual filed a complaint against us alleging breach of contract and fraud and related business torts related to certain patents that the plaintiff transferred to us. We believe that the plaintiffs claims are without merit. Although we reached a tentative settlement in this matter, the Plaintiff has failed to execute the settlement and the case was dismissed.
 
 Department of Health Services - Medi-Cal Action Against Classic Care Pharmacy
 
 On April 17, 2002 the Department of Health Services (DHS) notified the management of Classic Care Pharmacy that the Medi-Cal Program intended to withhold 100% of payments and temporarily suspend and deactivate the Classic Care Pharmacy Medi-Cal provider number.
 
 The Department of Health Services ("DHS") took this action after having reviewed the prescriptions on record at Classic Care Pharmacy. The DHS stated that they had reviewed thirty-two prescriptions, and that two of the ten prescribing physicians had denied treating the patients and writing the prescriptions. The DHS cited Classic Care Pharmacy for violations of CCR, Title 22, Sec.51476.1, (a) and 51476.1(a)(2), which states that written prescriptions must contain the name of the prescribing physician and their provider number. Based on its findings the DHS and the Medical Program concluded that Classic Care Pharmacy might have intentionally committed fraud.
 
 Classic Care management retained outside counsel shortly after receiving the DHS notice to review the Department of Health Services findings. After reviewing the supporting DHS material, outside counsel informed Classic Care management that it believed the facts presented by the DHS were inaccurate and that its position was unfounded. Classic Care management and its principle shareholders obtained written affidavits from most of the physicians whose prescriptions had been reviewed by the DHS confirming that they had treated the patients and did prescribe the medications.
 
 On April 29, 2002, outside counsel contacted the DHS to discuss its findings and present the documentation supporting their position. DHS informed outside counsel that they would have to follow the standard appeal process, which normally requires two or more months to complete. Classic Care Pharmacy instructed outside counsel to seek an ex parte temporary restraining order against the DHS for their failure to show cause regarding their actions. On May 8, 2002, in the Superior Court for the state of California, the Court granted Classic Cares ex parte request issuing a preliminary injunction against the DHS and reinstated Classic Care Pharmacys medical provider number. The Court set May 24, 2002 as the date for the DHS to show cause. On May 24, 2002, the DHS was still not prepared to show cause. The court granted a 30-day extension.
 
 Classic Care, Inc and Classic Care Pharmacy administrative appeal failed. Once the appeal took place the Superior court could no longer uphold our lack for due process claim and the DHS canceled Classic Care Pharmacys medical provider number. The justice department has not taken any further action against Classic Care Pharmacy. Subsequently we dissolved Classic Care Pharmacy.
 
 Except as otherwise specifically indicated above, we believe that we do not have any material liability for any lawsuits, settlements, judgments, or fees of defense counsel which have not been paid or accrued as of December 31, 2002.
 
 H.D. Smith Wholesale Drug Company - Action for breach of contact and other various causes of action
 
 On April 2, 2003, H.D. Smith filed a complaint against Classic Care, Inc., Kaire Holdings, Inc., Sarit Rubenstein, Steven Oscherowitz and Larisa Vernik for various causes of action relating amounts owed for certain drugs that were delivered to Classic Care. H.D. Barnes is seeking $430,205 plus interest. We feel that this issue is a Classic Care issue and very little if any of the amount owned relates to us the parent. This case is still in the discovery stage. We have hired outside counsel and are defending ourselves in this litigation matter.
 
 36
 **Item 2.**  **Changes in Securities and Use of Proceeds**
 
 None
 
 **Item 3.**  **Defaults Upon Senior Securities**
 
 None
 
 
 **Item 4.**  **Submission of Matters of a Vote to Security Holders**
 
 **None**
 
 **Item 5.**  **Other Information**
 
 None
 
 **Item 6.**  **Exhibits and Reports on Form 8-K:**
 
 
 a) Exhibits
 
 31.1  Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)
 ( Section 302 of the Sarbanes-Oxley Act of 2002)
 
 31.2  Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)
 ( Section 302 of the Sarbanes-Oxley Act of 2002)
 
 32.1  Certification of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350
 (Section 906 of the Sarbanes-Oxley Act of 2002)
 
 32.2  Certification of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350
 (Section 906 of the Sarbanes-Oxley Act of 2002)
 
 (b)  Reports on Form 8-K:
 
 none
 
 
 37
 
 
 
 
 
 
 SIGNATURES
 
 
 
 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 KAIRE HOLDINGS INCORPORATED.
 (Registrant)
 
 
 
 Date: November 19, 2004  By: /s/ Steven R.Westlund
 Steven Westlund
 Chief Executive Officer, Chairman
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  See accompanying notes to these financial statements.38