<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB

     (Mark One)
     [X]  ANNUAL REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934.  For the fiscal year ended December 31, 1998.

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

                        Commission file number  0-21384
                                               ---------

                          KAIRE HOLDINGS INCORPORATED
               ------------------------------------------------
                (Name of small business issuer in its charter)

           Delaware                                    13-3367421
-------------------------------                -----------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

2139 Pontius Avenue, Los Angeles , California             90025
(Address of principal executive offices)                (Zip Code)
                                         
Registrant's Telephone number, including area code: (310) 312-9652
                                                    --------------

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

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

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

Yes X  No 
    --    --

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

The issuer had revenues of $370,338 for the fiscal year ended December 31, 1998.

The aggregate market value of the voting stock held by non-affiliates on
December 31, 1998 was approximately $538,558 based on the average of the bid and
asked prices of the issuer's common stock in the over-the-counter market on such
date as reported by the OTC Bulletin Board.  As of December 31, 1998, 15,387,384
shares of the issuer's Common Stock were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

The Company's report on Form 8-K dated April 8, 1999: Items 6 and 7

The Company's report on Form S-8 dated March 19, 1999: Part II

The Company's report on Form 8-K dated March 23, 1998: Items 4, 5 and 7

The Company's report on Form S-8 dated January 9, 1998: Part II

Transitional Small Business Disclosure Format  Yes ____  No  X
                                                            ---

                                      -1-
<PAGE>
 
                                     PART I

ITEM 1.    Description of Business

General Business Development

          The Company, which was formerly known as Interactive Medical
Technologies Ltd., was incorporated in Delaware in 1986.  The Company provides
non-radioactive diagnostic products and laboratory analysis services to private
and government research facilities, academic centers, and hospitals engaged in
studying the effects of experimental drugs and/or surgical procedures have on
regional blood flow.  The Company's products and services are sold through the
Company's E-Z Trac division.

          In 1993, the Company acquired Venus Management, Incorporated, ("VMI")
which was incorporated in New York on August 1, 1989.  VMI's principle assets at
the time were two MRI systems, one which was leased to an MRI service provider
operating in New York and the second unit which was not operational.  The non-
operational unit was returned to the finance company upon which VMI received a
release of claims agreement.  Concerning the leased system, on or about March 1,
1995, VMI entered into a transfer of interest agreement with Siemens Credit
Corp., Medical Funding of America ("MFA") and Tri-county whereby Kaire gave its
corporate guaranty for all of Venus' obligations under this agreement.  MFA
defaulted on the loan and on April 2, 1997 Siemens Credit Corporation filed a
civil action against Kaire for the accelerated amount due plus costs.
Subsequently, a Transfer of Interest Agreement was drawn up between Venus
Management, Siemens Credit Corporation and Medical Management, Inc. (NYSE symbol
CMI) whereby CMI would take over the lease and at the same time the legal action
was put on hold.  (see legal Proceedings).

          In May 1996, the Company made a proposal to acquire Pastels
International, Inc. ("Pastels"), a private California personal care products
company that manufactured several beauty and skin care formulations.  Prior to
June 1997, the Company decided not to proceed with the acquisition due to
Pastels not meeting certain key performance criteria.  The company had advanced
$302,856 to Pastels, of which $272,437 was expensed in 1996 and the balance of
$30,419 was expensed in 1997.

          In September 1996, the Company attempted to enter into an agreement to
acquire Nutra Quest, Incorporated ("NQI"), a start-up network marketing company,
which distributed food supplement and nutrition consumers products.  Due to
difficulties with NQI's CEO and management,  the anticipated business growth
expected by NQI never materialized which lead to the termination of NQI's CEO
during the fourth quarter of 1997.  Subsequently, the NQI CEO seized the
Company's headquarters along with certain assets, thus permanently damaging
NQI's business.  As a result of these of chain of events, NQI operations were
terminated during the fourth quarter of 1997.  At this time any remaining
distributor downlines were transferred to Kaire International and the remaining
NONI inventory was also transferred to Kaire International, Inc.  The Company
funded NQI $2,0003,728 of which $502,728 and $1,501,000 was expensed in 1996 and
1997 respectively.  (see Legal Proceedings).

          In December 1997 the Company entered into an agreement (the
"Agreement") to acquire 80% of Kaire International, Inc. ("KII"), a network
marketing firm based in Longmont, Colorado, with 1997 annual sales of
approximately $31,000,000. In exchange for KII's Common Stock, the Agreement
called for the Company to invest an initial $1,000,000 plus Company Common
Stock, and to subsequently provide additional capital totaling $2,000,000 by the
latter of February 15, 1998 or the completion of KII's year-end

                                      -2-
<PAGE>
 
audit. Determining that the Company was not going to raise the additional
capital needed by such dates, the Company and KII entered into an agreement
whereby the Company assigned approximately two thirds of its equity position in
KII to a third party, and the third party was to fund KII $2,000,000. For
consideration, the Company received an option from KII repurchase the same
number of KII shares that it had assigned to the third party $2,000,000. The
Company was unable to raise the funds and the option expired on August 5, 1998.
After the occurrence of these events, the Company owns 24% of KII. A write down
of $2,632,003 in the KII investment was reflected in the Company's 1997
financial statements. KII filed an S-1 Registration Statement on February 11,
1998 and an Amended S-1 Registration Statements on July 10, 1998 and October 23,
1998. The Registration statement provides for the selling of 1,000,000 shares of
KII at $6.00 a share. The under writer is the May Davis Group Incorporated,
located in Baltimore, MD, and the attorney is Gusrae, Kaplan & Bruno located in
New York, NY. Subsequent to the filing of the amended Registration Statement,
KII decided not to proceed with the offering. On December 10, 1998, Natural
Health Trends Corp., ("NHTC") (NASDAQ: Symbol NHTCC), announced it had signed an
agreement as of November 24, 1998 to purchase certain assets of KII for a
combination of Series E and Series F Preferred stock, Acquisition Warrants and a
percentage of NHTC's net income for a period of five years. It is not known what
effect the NHTC agreement will have on Kaire Holding's investment in KII, thus
due to the uncertainty in Kaire Holding's ability to recover its investment in
KII, its investment in KII was written off for the year ending December 1997.

          On February 19, 1998, Kaire Holdings, Incorporated changed its name
from Interactive Medical Technologies, Ltd., changed its NASDAQ OTC BBS symbol
to "KAHI" from "NONI" and reverse split its Common Stock at a ratio of seventy-
five (75) to one (1).

          In March 1998, the Company entered into an agreement to acquire 35% of
Potomac Worldwide, Ltd., ("Potomac") a BVI company, and its primary subsidiary,
Nanjing Potomak Beauty & Care Co. Ltd. ("Nanjing") located in Mainland China.
Nanjing retails and wholesales health foods, household chemicals, cosmetics and
shape forming underwear.  A condition to this agreement was the Company's
ability to cross license the sale of products between Potomac and Kaire
International, Inc.  Kaire Holdings, Inc.'s inability to meet that condition
resulted in the voiding of the acquisition.

Business of Kaire Holdings Incorporated

          The Company markets three products, two of which are designed for
animal blood flow studies, the E-Z Trac Ultraspheres and the NuFlow fluorescent
microspheres.  The third product is a service the Company provides for its
clients which counts NuFlow fluorescent microspheres used in the blood flow
studies and measures regional blood flow under laboratory conditions.
 
     The E-Z Trac Ultraspheres are microspheres designed for small research
studies measuring regional blood flow.  The NuFlow fluorescent microspheres are
designed to measure regional blood flow for both small or large regional blood
flow research studies using E-Z Trac's Investigative Partner Service ("IPS") to
analyze the studies samples.  The Company markets microsphere products to
pharmaceutical companies, universities, hospitals and other academic centers
engaged in regional blood flow studies of experimental drugs or surgical
procedures.

                                      -3-
<PAGE>
 
E-Z Trac Ultrasphere Microspheres

     The E-Z Trac Ultrasphere colored microspheres are the Company's original
product developed for regional blood flow studies.  The raw materials necessary
for the production of the colored microspheres are available from numerous
sources.  The microspheres are non-radioactive polystyrene spheres ranging from
3 to 200 microns in size.  The Company treats and labels the microspheres in its
laboratory based upon a proprietary trade secret process.  Eight non-radioactive
colored dyes are attached to the microspheres, giving them distinctive colors
when viewed and counted using a light microscope.  The patented process also
involves a technology for separating the Ultrasphere from tissue and blood.  The
Company also sells the reagents that are used in this patented process.  The
Company's non-radioactive technique, has proven to be at least as accurate as
the radioactive microspheres technique, and eliminates the need and additional
cost required to dispose of radioactive waste.  Other strengths offered by the
Ultraspheres are that they are stable over time and include eight different
colors that can be visualized simultaneously.

     Ultrasphere sales are made by the Company both directly to customers and
through two distributors in the U.S. and Japan.  The distributors are Triton
Technology and Primetec respectively.  Customers include Bowman Gray School of
Medicine, New York, Texas A&M, Cornell and Columbia Universities, Rhode Island
Hospital, Hospital du Sacre Coeur de Montreal,  University of  New South Wales
and others.

Investigative Partner Services (IPS) with NuFlow Fluorescent Microspheres

     In connection with the development of NuFlow fluorescent microspheres, the
Company established Investigator Partners Service ("IPS").  This service
combines a national reference service with an automated laboratory analysis that
includes counting the microspheres used in the blood flow studies.  Here the
Company offers a fast accurate method of measuring regional blood flow under
laboratory conditions.  The NuFlow fluorescent microspheres are counted using a
customized Becton-Dickenson flow cytometer and the Company's own proprietary
software.  Besides achieving accurate results with this process, the Company has
the capacity of analyzing approximately 800 samples per week.

     IPS typically receives its business from customers within the U.S.
Depending on the order, the Company usually supplies its customer with a product
kit that contains the necessary supplies, i.e. microspheres, test tubes, and
instructions.  Upon receiving the kit, the customer would run their experiment,
placing the resulting tissue samples derived from the experiment into the tubes
supplied from the kit and forward the kit to IPS for analysis.  IPS typically
returns the analysis results in seven to ten days.  IPS sales are made both
directly and through a distributor.  The distributor is Triton Technology.
Customers include SmithKline Beecham Pharmaceutical, Alliance Pharmaceutical,
Case Western Reserve University and others.  Further information can be found in
Kaire Holdings above referenced website.

National Institute of Health - Contrast Microspheres

     In October 1995, the Company applied to the National Institute of Health
("NIH") for a research grant to further develop the contrast microsphere for use
in human diagnostic application. This application was approved in January 1996
granting the Company $98,405 for Phase One of the project. Phase One was
completed in 1996, but due to difficulties in coordinating efforts with the
Company and NIH's researchers, the project was terminated.

                                      -4-
<PAGE>
 
Sequesterant Products

     The Company no longer markets directly or indirectly any product based on
the Sequesterant technology. (see Legal Proceedings)

Research & Development

     In 1998 and 1997 there were no funds allocated for new research and
development projects.

Product Liability Insurance

     Although the Company believes its products are safe, it may be subject to
product liability claims from persons injured through the use of the Company's
marketed products or services. The Company carries no direct product liability
insurance, relying instead on the coverage maintained by its distributors and
manufacturing sources from which it obtains product. There is no assurance that
this insurance will adequately cover any liability claims brought against the
Company. There also can be no assurance that the Company will be able to obtain
its own liability insurance (should it seek to do so) on economically feasible
terms. The Company's failure to maintain its own liability insurance could
materially adversely affect its ability to sell its products in the future.
Although no product liability claims have been brought against the Company to
date, if there were any such claims brought against the Company, the cost of
defending against such claims and any damages paid by the Company in connection
with such claims could have a materially adverse impact upon the company,
including its financial position, results of operations and cashflows.

Status of New Products or Services

Personal Care Products - Pastels International, Inc.

     In May 1996, the Company made a proposal to acquire Pastels International,
Inc. ("Pastels"), a private California personal care products company that
manufactured several beauty and skin care formulations.  Prior to June 1997, the
Company decided not to proceed with the acquisition due to Pastels not meeting
certain key performance criteria.  The company had advanced $302,856 to Pastels,
of which $272,437 was expensed in 1996 and the balance of $30,419 was expensed
in 1997.

Nutritional Products - Nutra Quest, Inc.

     In September 1996, the Company entered into an agreement to acquire Nutra
Quest, Incorporated ("NQI"), a start-up network marketing company, which
distributed food supplement and nutrition consumers products. Due to
difficulties with NQI's CEO and management, the anticipated business growth
expected by NQI never materialized which lead to the termination of NQI's CEO
during the fourth quarter of 1997. Subsequently, the NQI CEO seized the
Company's headquarters along with certain assets, thus permanently damaging
NQI's business. As a result of these of chain of events, NQI operations were
terminated during the fourth quarter of 1997. At this time any remaining
distributor downlines were transferred to Kaire International and the remaining
NONI inventory was also transferred to Kaire International, Inc. The Company
funded NQI $2,003,728 of which $502,728 and $1,501,000 was expensed in 1996 and
1997 respectively. (see Legal Proceedings).

                                      -5-
<PAGE>
 
Kaire International, Inc.

In December 1997 the Company entered into an agreement (the "Agreement") to
acquire 80% of Kaire International, Inc. ("KII"), a network marketing firm based
in Longmont, Colorado, with 1997 annual sales of approximately $31,000,000. In
exchange for KII's Common Stock, the Agreement called for the Company to invest
an initial $1,000,000 plus Company Common Stock, and to subsequently provide
additional capital totaling $2,000,000 by the latter of February 15, 1998 or the
completion of KII's year-end audit.  Determining that the Company was not going
to raise the additional capital needed by such dates, the Company and KII
entered into an agreement whereby the Company assigned approximately two thirds
of its equity position in KII to a third party, and the third party was to fund
KII $2,000,000.  For consideration, the Company received an option from KII
repurchase the same number of KII shares that it had assigned to the third party
$2,000,000.  The Company was unable to raise the funds and the option expired on
August 5, 1998.  After the occurrence of these events, the Company owns 24% of
KII.  A write down of $2,632,003 in the KII investment was reflected in the
Company's 1997 financial statements.  KII filed an S-1 Registration Statement on
February 11, 1998 and an Amended S-1 Registration Statements on July 10, 1998
and October 23, 1998.  The Registration statement provides for the selling of
1,000,000 shares of KII at $6.00 a share.  The under writer is the May Davis
Group Incorporated, located in Baltimore, MD, and the attorney is Gusrae, Kaplan
& Bruno located in New York, NY.  Subsequent to the filing of the amended
Registration Statement, KII decided not to proceed with the offering.  On
December 10, 1998, Natural Health Trends Corp., ("NHTC") (NASDAQ: Symbol NHTCC),
announced it had signed an agreement as of November 24, 1998 to purchase certain
assets of KII for a combination of Series E and Series F Preferred stock,
Acquisition Warrants  and a percentage of NHTC's net income for a period of five
years.  It is not known what effect the NHTC agreement will have on Kaire
Holding's investment in KII, thus due to the uncertainty in Kaire Holding's
ability to recover its investment in KII, its investment in KII was written off
for the year ending December 1997.

Competition

     The Company and its subsidiaries operate in a highly competitive technology
environment. The Company competes primarily on the basis of product uniqueness
by establishing a point of difference usually based on technological content,
quality, service and reliability.

     Although the Company believes that its microspheres are unique in
application and performance, there is no assurance that a highly competitive
market with more powerful competitors will not emerge if competitors are able to
develop microspheres substantially similar to, or better than those of the
Company. Although the Company knows of only two other competitors at this time
using non-radioactive microspheres for measuring animal blood flow, the Company
does compete directly against companies producing radioactive microspheres.

     The Company was trying to expand into the nutritional food supplemental
area and the beauty and skin formulation areas through mergers and acquisitions.
These acquisitions were unsuccessful and the Company has abandoned this avenue
for growth. Currently the Company is looking to develop its core business.

                                      -6-
<PAGE>
 
Patents, Licenses and Trademarks

     The Company held a United States patent for the use of colored microspheres
in measuring blood flow in laboratory animals as well as for methods of
separating the microspheres from blood and body flow in laboratory animals as
well as for methods of separating the microspheres from blood and body tissue
and determining the number of microspheres in tissue without separation which
expires in 2003. Similar patents were held by the Company for Canada, Australia
and Israel.

     The Company also held a United States patent for the preparation and
application of contrast microspheres in the detection of pulmonary emboli and
certain other conditions. This patent expires in 2004.

     The Company took a one time charge of $206,922 to write down Patents for
the year ending December 1997.  The 1997 write down adjusts for the patents that
are either no longer being used or have not been maintained with the U.S. Patent
Office.  The Company has discontinued maintaining the remaining patents and took
a charge of $44,691 to write down these patents for the year ending December
1998.

Royalty Agreements

     The company is required to pay inventors royalties equal to 6% of the
Company's sales of microspheres to Dr. Shell, M.D. Dr. Shell developed both the
colored microspheres and the proprietary technology for the measurement of blood
flow in research animals utilizing the colored microspheres.

Government Regulations

     All pharmaceutical and medical diagnostic equipment manufacturers are
subject to extensive regulation by the federal government, principally through
the United States Food and Drug Administration ("FDA"). For the marketing of the
Company's colored microspheres for animal blood flow research, the FDA does not
require the Company to prove its safety and efficacy.

     The Company's products are not subject to material environmental regulation
at this time. While the Company's current scope of microsphere operations is
relatively limited and all of the product is used without wastage, issues of
environmental compliance could arise in the future if increased manufacturing of
the microspheres were to require disposal of hazardous chemicals.

Research and Development Plan

     In 1997 the company did not enter into any new R&D projects in order
redirect the necessary funds into existing and pending acquisitions. The R&D
expenditures in 1997 are related to the completion of Phase One of the NIH
research project started in 1996. No new projects were started in 1997 and 1998.

Employees

     As of December 31, 1997 the Company had 9 full time employees. As of
December 31, 1998 the Company had four full time employees.

                                      -7-
<PAGE>
 
ITEM 2.  Description of Property

     Kaire Holdings Inc. corporate offices and E-Z Trac Investigative Partner
Services operations are conducted in a leased facility located in West Los
Angeles, California. The facility is approximately 3200 square feet at $6,500
per month. The lease expires in July 1999. The company is currently in
negotiations for a new location that will have a less rate per square foot.

     On September 17, 1996, Kaire Holdings in conjunction with Nutra Quest
signed a lease for property at 1717-1719 Stewart Street, Santa Monica,
California to provide space for the Nutra Quest operations. This lease was
assigned to Station X Studios, LLC on December 5, 1997 with the shutdown of the
Nutra Quest operations.

ITEM 3.  Legal Proceedings

Rudolf Steiner Research Foundation - No Longer a Party to the Complaint

     In February 1996, the Rudolf Steiner Research Foundation filed a complaint
in the United States District Court for the Central District of California
against Clark M. Holcolm, Lawrence Gibson, Murray Bettingen, Bettingen, Inc.,
and the Company.  This action alleges civil RICO, violation of the Securities
Act of 1933, violation of California Corporation Code, fraud, deceit and
intentional misrepresentation, negligent misrepresentation, conversion,
constructive trust and breach of contract.  The Company has been removed as a
party to this action in 1997.

SEC Proceeding - Settled

     Prior to June 1992, the Company, in executing a private placement, issued
approximately 2,506,982 shares of the Company's common stock to individuals.
This placement was structured in reliance upon the advice of the Company's then
securities counsel and was believed that the shares issued qualified for
exemption from registration under federal and state securities laws.  However,
certain subsequent resale's of these shares, commencing in June 1992, by the
original purchasers or their transferees, raised an issue as to whether a
technical distribution occurred that might have required either the original
shares issued or the shares resold to have been registered.  All of the
foregoing resales were either directly effected or arranged for by Clark M.
Holcomb.

     In October 1993, the Company filed a registration statement with the SEC to
register all of the foregoing 2,506,982 shares with the SEC.  Never the less,
the SEC investigated the above transactions and on October 1995, advised the
Company that it was filing a civil injunctive action against the Company, Dr.
William Shell and Clark M. Holcomb for alleged violations of the registration
provisions of the federal securities laws.

     The Company entered into a consent decree ("Decree") with the SEC in which
in the Company, without admitting or denying any wrongdoing, would be enjoined
from violating the registration provisions of the federal securities laws in the
future.  The SEC accepted the Decree in June, 1997.  No monetary penalties were
assessed against the Company.

                                      -8-
<PAGE>
 
Federal Trade Commission Proceeding - Settled

     The Seattle Regional Office of the Federal Trade Commission had advised the
Company that it believed the Company's fat sequesterant product, which was
marketed by KCD, a former licensee, under the name "SeQuester," had been
improperly represented in advertising claims, and that the sequesterant product,
when previously marketed by the Company under the name "Lipitrol", also was
improperly represented in advertising claims.  (Note, this product is no longer
marketed by Kaire Holdings).  On June 16, 1996 the FTC filed a complaint be
filed against the licensee, the Company and certain individuals in connection
with the foregoing.  Subsequently the Company and the FTC agreed upon a proposed
settlement in which the Company would consent to a permanent injunction
prohibiting it from making misrepresentations relating to weight loss or weight
reduction products or services, or with respect to tests or studies relating to
such programs or services.  In addition, the Company would pay consumer redress
to the FTC in an aggregate amount of $35,000 over a period of twelve months.
The Company's Board of Directors voted to accept the proposal in March 1996,
which was formally approved by the FTC in June 1997.  Final payment was made to
the FTC on April 16, 1998.

Siemens Credit Corporation  - MRI Equipment Assigned to Third Party

     On or about February 19, 1992, Medical Funding of America ("MFA") leased to
Tri-County a Siemens Mobile Magneton Impact MRI System with a Van. On or about
June 24, 1992 Siemens and MFA entered into a loan and security agreement in the
amount of $2,019,496, which was, paid directly to Siemens Medical Systems, Inc.
On or about March 1, 1995 Siemens, MFA, Tri-County and Venus Management (an
Interactive Medical Technologies (Kaire Holdings) subsidiary ("Kaire")) entered
into a transfer of interest agreement whereby Kaire gave its corporate guaranty
of all of Venus' obligations under this agreement. Venus and MFA defaulted on
the loan and on April 2, 1997 Siemens Credit Corporation filed a civil action
for the accelerated amount due plus costs. This action is still pending. On or
about October 9, 1997, a Transfer of Interest Agreement was drawn up between
Venus Management, Siemens Credit Corporation and Medical Management, Inc.
("CMI") (NYSE: symbol CMI) whereby CMI would take over the lease. CMI took
possession of the MRI. All parties executed the agreement except Siemens who
continued to negotiate with CMI in an attempt to get CMI to pay all of the
arrearages owed Siemens. At present CMI and Siemens are still negotiating over
the terms of the agreement. It is the opinion of the Company's management that
its obligations under this agreement have been assigned and that Siemens will
not pursue this matter any further.

Nutra Quest Inc. - Counter Claim Settled

     On or about October 17, 1997, the CEO of Nutra Quest, Inc. ("CEO"),
considered a wholly owned subsidiary of Kaire Holdings (formerly Interactive
Medical Technologies, Ltd. (the "Company")) was terminated.  On or about that
time, the CEO took possession of and removed certain company financial and
administrative records of the Company and disputed the Company's ownership of
Nutra Quest, Inc.  The Company obtained a permanent injunction preventing CEO
from representing himself as Nutra Quest Inc. and filed a complaint concerning
ownership of Nutra Quest Inc.  The CEO appealed the injunction and served the
Company a cross complaint in July 1998.  Concerning the Appeal, Nutra Quest's
opening appellate brief was due on September 11, 1998.  Concerning the Cross-
Complaint, on August 21, 1998, the Company filed the following motions; 1)
Demurrer to Cross-Complaint, 2) Motion to Strike Cross-Complaint and 3) Motion
to Dismiss Cross-Complaint.  On November 3, 1998 the respective parties engaged
mediation and successfully and completely resolved all claims.  The settlement
is a "walk away" for all involved and does not require payment or receipt of any
funds or transfer of any assets or property.

                                      -9-
<PAGE>
 
     The effect of the CEO's actions against the Company in 1998 permanently
damaged Nutra Quest's business to the extent that the Company terminated its
operation in December 1997.  The amount invested in Nutra Quest was written off
in 1997 (see financial statements for more detail).

M&A West, Inc. - Claim Settled

     On or about July 2, 1998, M&A West, Inc. a Nevada corporation, filed a
Complaint against the Company claiming acts that constitute a breach of action.
M&A West, Inc. is a public relations firm that was contracted to help the
Company obtain additional funding through the creation of interest in our stock.
Kaire contends that M&A West did not perform as contracted and in turn filed an
answer and a counterclaim for return of compensation paid. The parties attended
Non-Binding Arbitration on March 29, 1999 where the parties mutually decided not
to pursue this matter and agreed to a "walk away" settlement.

Ex-employee Files Various Claims against the Company

An ex-employee who was released from the Company on or about January 1998 due to
downsizing, filed suit on November 18, 1998 against the Chief Executive Officer
and the Company for sexual harassment/discrimination, failure to maintain a work
environment free from harassment, wrongful termination/constructive discharge in
violation of public policy, breach of implied-in fact contract, breach of
covenant of good faith and fair dealing, intentional infliction of emotional
distress, negligence and retaliation.  The  complaint was served the last week
of December 1998.  The damages prayed are as follows: special damages -
$250,000, general damages - $1,000,000 and punitive damages - $3,000,000.

The response to the complaint was filed January 29, 1999 with the discovery
process to begin shortly thereafter.  The status conference is scheduled for
June 18, 1999.  On or about April 2, 1999 the parties had a conference where
settlement offers were exchanged.  The party's attorneys are currently reviewing
the offers. It is the opinion of the Company that there is no basis for the
above claims, however, there can be no assurance that the Company will prevail.

     Except as otherwise specifically indicated above, management believes that
the Company doesn't have any material liability for any lawsuits, settlements,
judgments or fees of defense counsel which have not been paid or accrued as of
December 31, 1998.  However, there can be no assurance that the Company will
prevail in any of the above proceedings.  Also the Company may be required to
continue to defend itself resulting in substantial additional expense.  In the
event the Company is unable to pay the defense costs associated with the
foregoing an unfavorable settlement or judgment could be awarded against the
Company which could have a material adverse effect upon the Company.

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

     On or about October 1, 1997, a proposal to increase the number of
authorized shares to 400,000,000 for the purpose to provide for the merger with
Kaire International, Inc. was voted upon and authorized by a majority of Kaire
Holdings, Inc. shareholders.

     On or about January 30, 1998, a proposal to 1) reverse split the Company's
common stock up to and not to exceed a reverse ratio of seventy-five to one, 2)
amend the Company's Articles of Incorporation changing the Company name to Kaire
Holdings Incorporated and 3) changing the Company's NASDAQ symbol to KHI was
voted and authorized by a majority of Kaire Holdings, Inc. shareholders. These
changes became effective on February 19, 1998.

 

                                      -10-
<PAGE>
 
                                    PART II

ITEM 5.  Market for Common Equity and Related Shareholder Matters

     The Company's Common Stock is quoted on the over - the - counter market and
quoted on the National Association of Securities Dealers Electronic Bulletin
Board ("OTC Bulletin Board") under the symbol "KAHI". It was previously traded
under the ticker symbol "NONI" until February 19, 1998, and before July 23, 1997
it was traded under the ticker symbol "ITAM". The high and low bid prices for
the Common Stock, as reported by the National Quotation Bureau, Inc., are
indicated for the periods described below. Such prices are inter-dealer prices
without retail markups, markdowns or commissions, and may not necessarily
represent actual transactions.

<TABLE>
<CAPTION>
 
 
                        1997                       Low      High
                        ----                       ---      ----
                        <S>                       <C>      <C>
                        First Quarter             $ 0.08   $0.145
                        Second Quarter              0.07    0.128
                        Third Quarter               0.05    0.098
                        Fourth Quarter             0.035    0.093

                        <CAPTION> 

                        1998                       Low      High
                        ----                       ---      ----
                        <S>                       <C>      <C>
                        (Post reverse split)
                        First Quarter             $ 0.53   $ 1.09
                        Second Quarter              0.56     0.56
                        Third Quarter               0.03     0.02
                        Fourth Quarter              0.02     0.02

</TABLE>

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

     As of December 31, 1998, there were approximately 610 shareholders of
record of the company's Common Stock.

     During the fiscal year ended December 31, 1998, to raise capital, the
Company issued securities using the exceptions available under the Securities
Act of 1933 including unregistered sales made pursuant to Section 4(2) of the
Securities Act of 1933 and pursuant to Regulation S, as follows:
 
     The Company issued 11,106,602 shares of common stock for conversion of
$795,000 of notes payable and $80,051 of interest incurred on these notes.

     The Company issued 186,806 shares of common stock for services valued at
$1,372,229. Some of these expenses were recognized in the prior year.

     The Company issued 461,437 share of common stock for conversion of debt
valued at $142,266.

     The Company issued 337,153 shares of common stock for sale of stock valued
at $43,552.

                                      -11-
<PAGE>
 
ITEM 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

General

     The Company is engaged in the business of developing, manufacturing and
marketing diagnostic imaging products and services relating to blood flow
research in animals and the research and development of propriety diagnostic
imaging products and procedures for human applications that use existing imaging
equipment such as x-ray, CAT scan, MRI and ultra sound.  The Company markets
three products, two of which are designed for animal blood flow studies, the E-Z
Trac Ultraspheres and the NuFlow fluorescent microspheres.  The third product is
a service the Company provides for its clients which counts NuFlow fluorescent
microspheres used in the blood flow studies and measures regional blood flow
under laboratory conditions.
 
     The E-Z Trac Ultraspheres are microspheres designed for small research
studies measuring regional blood flow.  The NuFlow fluorescent microspheres are
designed to measure regional blood flow for both small or large regional blood
flow research studies using E-Z Trac's Investigative Partner Service ("IPS") to
analyze the studies samples.  The Company markets microsphere products to
pharmaceutical companies, universities, hospitals and other academic centers
engaged in regional blood flow studies o experimental drugs or surgical
procedures.

     In 1996 and 1997, the Company attempted to enter into the Personal Care
Products area with Pastels International, Inc. ("Pastels"), and the Nutritional
Supplements area with Nutra Quest Incorporated ("NQI") through acquisitions.
Pastels manufactured several beauty and skin care formulations sold commercially
under the names AloeBare, a depilatory, and Skinnergy, an anti-aging skin
treatment. The Company ended its involvement with Pastels in early 1997 as a
result of Pastels not meeting certain key criteria necessary for the acquisition
to be successful. The company had advanced $302,856 to Pastels, all of which has
been expensed in full.

     NQI was a start up operation that the Company attempted to acquire in 1996
and 1997. NQI had a broad line of products with specific emphasis on nutritional
alternatives to coffee, tea and soda, herbal supplements to more efficiently
process calories, mineral and enzyme supplements for use as digestive aids,
athletic performance products containing a blend of amino acids and rice protein
as well as a personalized profile to evaluate the health and nutritional needs
of each individual. Due to difficulties with NQI's CEO and management, the
anticipated business growth expected by NQI never materialized and by December
1997 NQI operations were terminated. The total amount advanced Nutra Quest was
$2,003,728 of which $502,728 was written off in 1996 with the remainder of
$1,501,000 being written off in 1997.

     In December 1997 the Company entered into an agreement (the "Agreement") to
acquire 80% of Kaire International, Inc. ("KII"), a network marketing firm based
in Longmont Colorado with 1997 annual sales of approximately thirty one million
dollars ($31,000,000). In exchange for KII's Common Stock, the Agreement called
for the Company to invest an initial $1,000,000 plus Company Common Stock, and
to subsequently provide additional capital totaling two million dollars
($2,000,000) by the latter of February 15, 1998 or when their independent
accountants signed off on KII's year-end audit. Determining that the Company was
not going to raise the additional capital needed, the Company and KII entered
into a third

                                      -12-
<PAGE>
 
party agreement whereby the Company assigned two thirds of its position in KII
to a third party and the third party was to fund KII two million dollars
($2,000,000). For consideration, the Company received an option from KII to
purchase back the same number of KII shares that it had assigned to the third
party, for two million dollars ($2,000,000). The Company was unable to raise the
funds and the option expired on August 5, 1998. The Company currently owns 24%
of KII and therefore is reported on the equity basis. A write down of $2,632.003
in the KII investment was reflected in the Company's financial statements based
on the Company's assignment of approximately two thirds of its equity position
to a third party for a release of $2,000,000 funding obligation. On December 10,
1998, Natural Health Trends Corp., ("NHTC") (NASDAQ: Symbol NHTCC), announced it
had signed an agreement as of November 24, 1998 to purchase certain assets of
KII for a combination of Series E and Series F Preferred stock, Acquisition
Warrants and a percentage of NHTC's net income for a period of five years. It is
not known what effect the NHTC agreement will have on Kaire Holding's investment
in KII, thus due to the uncertainty in Kaire Holding's ability to recover this
investment, the Company wrote off its investment in KII of $4,694,038 for the
year ending December 1997.

     On February 19, 1998, Kaire Holdings, Incorporated changed its name from
Interactive Medical Technologies, Ltd., changed its NASDAQ OTC BBS symbol to
"KAHI" from "NONI" and reverse split its Common Stock at a ratio of one (1) to
seventy-five (75).

     In March 1998, the Company attempted to enter into an agreement to acquire
35% of Potomac Worldwide, Ltd. ("Potomac"), a BVI company, and its primary
subsidiary, Nanjing Potomak Beauty & Care Co. Ltd. ("Nanjing") located in
Mainland China. Nanjing retails and wholesales health foods, household
chemicals, cosmetics and shape forming underwear. The basis for this agreement
was to cross license products between Potomac and KII. Due to Kaire Holdings,
Inc.'s reduced equity position in Kaire International, Inc., the Potomac
agreement was not performed and is considered terminated.

Results of Operations

     The following table sets forth the Company's revenue and expense items for
the years ended December 31, 1998 and 1997.

<TABLE>
<CAPTION>
 
                                               FOR THE YEARS ENDED DECEMBER 31,
                                                     1998            1997
                                                 ------------   --------------
<S>                                              <C>            <C>   
 
     Product and Services                        $   370,338     $    292,750
     Lease rentals                                         -                -
                                                 -----------     ------------
     Total Revenue                                   370,338          292,750
Cost of Revenues                                     156,075          176,228
                                                 -----------     ------------
Gross Profit                                         214,263          116,522
Operating Expenses
     Research and Development                              0           62,363
     Selling, general and Administrative             981,605        5,166,062
                                                 -----------     ------------
     Total Operating Expenses                        981,605        5,228,425
                                                 -----------     ------------
     Loss From Operations                           (767,342)      (5,111,903)
 
Other Income (Expense)
Interest Expense                                    (226,985)        (556,867)   
Interest Income                                          159            2,766
Other Income                                           4,851           26,158
Loss provision on MRI Equipment                                      (125,000)
Loss on failed acquisitions                                        (1,540,457)
Write-down on patents                                (44,691)        (206,922)
Write-down of investment in Kaire Int'l Inc.                        4,694,038
                                                 -----------     ------------
Total Other Income (Expense)                        (266,666)      (7,094,360)
 
Loss before provision of income taxes             (1,034,608)     (12,206,267)
Provision for Income taxes                             3,600            4,000
                                                 -----------     ------------
Net Loss                                         $(1,037,608)    $(12,210,263)

</TABLE>

                                      -13-
<PAGE>
 
Comparison of years ended December 31, 1998 and 1997:

     Net revenue for the year ended December 31, 1998 was $370,338, an increase
of $77,587 or 26.5% from the year ended December 31, 1997. The increase in net
revenues was due to increased research projects being conducted by existing
customers

     Gross profit for the year ended December 31, 1998 was $214,263, an increase
of $97,741 or 71.7% compared to the same period in 1997. The increase in gross
profit was attributable to headcount reductions coupled with increased sales

     Research and Development costs were $0 for the year ended December 31, 1998
compared to $62,363 for the same period ended December 31, 1997. The company
discontinued starting new research projects in 1997 and the costs incurred in
1997 were attributable to 1996 projects that were completed in 1997.

     Selling, general and administrative expense ("SG&A") decreased to $981,605
from $5,166,062 for 1998 from 1997, amounting to a decrease of $4,184,457 or
84.7% from the same period last year. 1997 contained a charge for the difference
between market value of the Company's common stock and the exercise price on the
grant date on stock options issued to management and various consultants
accounted for $2,264,293 of the difference. A decrease in consulting fees,
outside services and legal fees accounted for approximately $1,254,323 of the
difference, the majority of this amount being incurred as part of the 1997 Kaire
International transaction. The difference was also attributable to an evaluation
of warrants and options , which were issued in the year 1996, as required per
SFAS No. 123 resulted in a 1997 charge of $464,909. The remaining decrease of
$200,000 is attributable to reduced spending resulting from downsizing.

     Interest expense was $226,985 or the year ended December 31, 1998, which
represents an decrease of $329,882 or 59.2% from the same period last year. The
December 31, 1998 interest expense decrease is primarily a result of a large 
below market discount on convertible notes issued throughout 1997.

     Other income of $26,158 recognized in 1997 represents the cost of the
portion of NONI inventory transferred to Kaire International that was sold on or
before December 31, 1997 by Kaire International. This figure is determined based
on the assumption that the NONI inventory is being held on consignment by Kaire
International. Due to the uncertainty of collecting these proceeds, there was no
amount recognized as income in 1998.

                                      -14-
<PAGE>
 
     In 1997 there was a loss provision of $125,000 on MRI Equipment represents
the amount MFA owed on the MRI equipment at the time the equipment was assigned
to Medical Management, Inc. ("CMI") (NYSE: symbol CMI). Venus Management is the
guarantor on the MFA note and is therefore liable for the defaulted amount that
is owed to Siemens Credit Corporation.

     Additionally, losses on failed acquisitions for the year ended December 31,
1997 of $1,540,457 represents $1,510,038 of funds advanced to NQI (nutritional
supplements company) in 1997 and $30,419 of funds advanced to Pastels (personal
care products company). For the year ended December 31, 1996, losses were
recorded of $502,728 for NQI and $242,016 for Pastels. As of December 31, 1997,
the Company ceased its business relationships with these companies.

     A one time charge of $206,922 to write down Patents was incurred in 1997.
The remaining patents were not maintained with the U.S. Patent Office resulting
in a charge of $44,691 in 1998.

     The write-down of the investment in Kaire International Inc. ("KII"), of
$4,694,038 was a result of KII's announcement on December 10, 1998 that it was
selling its assets to, Natural Health Trends Corp., ("NHTC") (NASDAQ: Symbol
NHTCC) based on an agreement signed as of November 24, 1998. This sale lead to
the uncertainty in Kaire Holding's ability to recover its investment in KII,
thus its investment in KII of $4,694,038 was written off for the year ending
December 1997.

     No provision was made for Federal income tax since the Company has incurred
significant net operating losses from inception.

Liquidity and Capital Losses

     The Company's revenues have been insufficient to cover acquisition costs,
cost of revenues and operating expenses. Therefore, the Company has been
dependent on private placements of common stock securities, bank debt, loans
from private investors and the exercise of common stock warrants in order to
sustain operations. In addition, there can be no assurances that private or
other capital will continue to be available, or that revenues will increase to
meet 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.
 
     On December 31, 1998 the Company had assets of $185,572 compared to
$381,734 on December 31, 1997. The Company had a total stockholders' deficit of
$2,610,593 on December 31, 1998 compared to a deficit of $3,915,311 on December
31, 1997, an increase of $(1,304,718). This increase for the year ended December
31, 1997 was the result 1) issuance of stock for note conversions and related
interest expense totaling $1,010,474, 2) stock and stock options issued for
services totaling $942,540 3) issuance of stock for the conversion of debt
totaling $142,266 and 4) stock issued for the sale of stock and a beneficial
conversion totaling $129,706 off set by the 1998 net loss of $890,948.

     As of December 31, 1998 the Company's working capital position increased
$641,070 from a negative $2,027,598 at December 31, 1997 to a negative
$1,386,528 at December 31, 1998, primarily as a result a decrease in accounts
payable and accrued expenses of $753,000 offset by a decrease in cash of
$29,597, a decrease in inventory of $45,000 and a decrease in other assets of
$37,333.

                                      -15-
<PAGE>
 
     In order to meet its current operating needs, the Company has cut all its
operations except for the products and services sold through its E-Z division.
Going forward, the company's plan of operation is to expand its efforts on the
sale of its colored microspheres and related laboratory and diagnostic services,
as well as launch related health products through an internet e-commerce site
the Company is developing. concentrate its efforts on the sale of its colored
microspheres and related laboratory and diagnostic services.

Outlook

     The Company has developed a new strategic plan that is expected to expand
the Company's presence and provide its customers with the ability to transact
business in a secure and informed environment via an internet e-commerce site.
It is anticipated that this facility will be operational sometime in April 999.

     Along with the Company's current product line, the Company will be
introducing five product categories: 1) sport nutrition, 2) executive nutrition,
that will provide nutritional products for people in high stress positions, 3)
specialty nutrition, that will provide nutritional assistance for people with
special physical needs, 4) ayueveda medicinal, that are traditional products
that focus on the bodies main organs, and 5) aphrodisiac products. There will be
sixteen to eighteen additional products introduced within the subsequent thirty
to sixty days.

     The Company's e-commerce facility will allow the Company to receive
individual customer orders through its commercial site which will alert the
designated manufacturer and fulfillment center to process the order.

     The e-commerce business provides several operational advantages for the
Company including no inventory cost or related capital expenditures, no need for
warehousing, shipping, large support staffs and the various related costs.

     Although the Company is on schedule to debut the new commercial site, there
can be no assurance that the Company will be successful in its attempts to
implement the new business.

Year 2000 Issue

     The Company has attempted to evaluate the impact of the year 2000 issue on
its business and does not expect the amounts, if any, to be expensed to be
material. No such costs have been expensed to date, since the Company uses off
the shelf software.

     Currently the Company anticipates commencing communication with its
significant vendors and customers to determine the extent that year 2000
compliance issues of such parties may effect the Company. At this time, the
Company believes there will be no disruption in business due to its customers'
or vendors' year 2000 readiness. The Company has not established a contingency
plan. There can be no guarantee that the systems of such other companies will be
timely converted without a material adverse effect on the Company's business,
financial condition or results of operations.

                                      -16-
<PAGE>
 
ITEM 7.   Financial Statements

<TABLE> 
<CAPTION> 

                                                               Page
                                                               ----
<S>                                                            <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 As of and for the Year Ended December 31, 1997                 F-1
 
         Consolidated Balance Sheet                             F-2
 
         Consolidated Statements of Operations                  F-3
 
         Consolidated Statements of Stockholders' Deficit       F-4
 
         Consolidated Statements of Cash Flows                  F-5
 
         Notes to Consolidated Financial Statements             F-7

</TABLE> 


                                      -17-
<PAGE>
[LETTERHEAD OF BERG & COMPANY LLP]

 
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                                        

Board of Directors and Stockholders
Kaire Holdings Incorporated

We have audited the accompanying consolidated balance sheet of Kaire Holdings
Incorporated and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the year then ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audit.  The financial statements of Kaire
Holdings Incorporated as of and for the year ended December 31, 1997, were
audited by other auditors whose report dated May 22, 1998, on those statements
included an explanatory paragraph that described a substantial doubt about the
Company's ability to continue as a going concern as discussed in Note 2 to the
financial statements.  Our opinion in so far as it relates to the amounts
included for the year ended December 31, 1997 is based solely on the reports of
the other auditors

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Kaire Holdings Incorporated and
subsidiaries as of December 31, 1998, and the consolidated results of their
operations and their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As shown in the consolidated
financial statements, the Company incurred a net loss of $1,034,008 and had
negative cash flows from operations for the year ended December 31, 1998.  These
factors, among others, as discussed in Note 2 to the financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.

/s/Berg & Company LLP

Berg & Company LLP
April 13, 1999

                                      F-1
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 December 31,

<TABLE>
<CAPTION>
                                                  ASSETS
                                                                        1998                    1997
                                                                    ------------            ------------ 
<S>                                                                 <C>                     <C> 
Current assets
  Cash and cash equivalents                                         $      6,331            $     35,928
  Accounts receivable, net of allowance
    for doubtful accounts of $1,000                                       55,260                  47,431
  Inventory                                                               70,042                 115,042
  Deposits                                                                 9,500  
  Other asset                                                             28,404                  70,947
                                                                    ------------            ------------ 
    Total current assets                                                 169,537                 269,348
                                                                    ------------            ------------ 

Noncurrent assets
  Furniture and equipment, net                                            16,035                  58,196
  Deposits                                                                    -                    9,500
  Patents, net                                                                -                   44,891
                                                                    ------------            ------------ 
    Total noncurrent assets                                               16,035                 112,387
                                                                    ------------            ------------ 
        Total assets                                                $    185,572            $    381,735
                                                                    ============            ============

                                  LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
  Notes payable                                                     $     25,000            $     25,000
  Accounts payable and accured expense                                 1,531,065               2,271,946
                                                                    ------------            ------------ 
    Total current liabilities                                          1,556,065               2,296,946
 
  Convertiable notes payable and debentures                            1,240,100               2,000,100
                                                                    ------------            ------------  
      Total liabilities                                                2,796,165               4,297,046
                                                                    ------------            ------------ 
                                   
Stockholders' deficit
  Common stock, $0.075 par value
    400,000,000 share authorized
    15,387,384 shares issued and outstanding                           1,154,054                 212,430
  Additional paid in capital                                          26,948,097              25,547,395
  Accumulated deficit                                                (30,712,744)            (29,675,136)
                                                                    ------------            ------------ 
      Total stockholders' deficit                                     (2,610,593)             (3,915,311)
                                                                    ------------            ------------ 
        Total liabilities and stockholders' deficit                 $    185,572            $    381,735
                                                                    ============            ============
</TABLE>

          See Accountants' Report and Notes to Financial Statements.

                                      F-2
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 DECEMBER 31,

<TABLE>
<CAPTION>
                                                                        1998                          1997
                                                                     -----------                  ------------
<S>                                                                  <C>                          <C> 
Revenues                                                             $   370,338                  $    292,750

Cost of goods sold                                                       156,075                       176,228
                                                                     -----------                  ------------
Gross Profit                                                             214,263                       116,522
                                                                     -----------                  ------------
Operating expenses                                       
  Research and development                                                     -                        62,363 
  Selling, general, and administrative expenses                          981,605                     5,166,062 
                                                                     -----------                  ------------
    Total operating expenses                                             981,605                     5,228,425
                                                                     -----------                  ------------
Loss from operations                                                    (767,342)                   (5,111,903)
                                                                     -----------                  ------------
Other income (expense)                                   
  Interest expense                                                      (226,985)                     (556,867)
  Interest income                                                            159                         2,766
  Other income                                                             4,851                        26,158
  Loss provision on MRI equipment                                              -                      (125,000)
  Loss on failed acquisitions                                                  -                    (1,540,457)
  Write-down of patents                                                  (44,691)                     (206,922)
  Write-down of investment in Kaire International, Inc.                        -                    (4,694,038)
                                                                     -----------                  ------------
    Total other (income) expenses                                       (266,666)                   (7,094,360)
                                                                     -----------                  ------------
Loss before provision for income taxes                                (1,034,008)                  (12,206,263)

Provision for income taxes                                                 3,600                         4,000
                                                                     -----------                  ------------
Net loss                                                             $(1,037,608)                 $(12,210,263)
                                                                     ===========                  ============
Basic loss per share                                                 $     (0.13)                 $     (14.40)
                                                                     ===========                  ============
Diluted loss per share                                               $     (0.13)                 $     (14.40)
                                                                     ===========                  ============
Weighted-average shares outstanding                                    7,929,788                       847,982
                                                                     ===========                  ============
</TABLE>

          See Accountant's Report and Notes to Financial Statements.

                                      F-3
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                        
                                             Common Stock               Additional        
                                       --------------------------        Paid-In         Accumulated
                                         Shares          Amount          Capital           Deficit            Total
                                       ----------      ----------      -----------      ------------       ------------  
<S>                                    <C>             <C>             <C>              <C>                <C> 
Balance, December 31,
      1996                                608,732      $   45,655      $16,456,437      $(17,464,873)      $   (962,781)
Issued for options/
      exercised                            40,000           3,000           79,450                               82,450
Issued for conversion
      of notes payable                    117,603           8,820          429,922                              438,742
Issued in private
      placements                          301,346          22,601        1,001,846                            1,024,447
 
Issued for services                       186,806          14,011        1,358,218                            1,372,229
Issued for acquisition
      of Kaire International, Inc.      1,576,122         118,209        3,575,829                            3,694,038
Issued for convertible
      note interest                         1,792             134            6,284                                6,418
Charge related to
      beneficial conversion
      feature of convertible
      notes payable                                                        427,000                              427,000
Issuance of stock options/
      warrants for services                                                422,409                              422,409
Compensation expense
      related to issuance of
      below-market stock options
      options                                                            1,790,000                            1,790,000
 
Net loss                                                                                 (12,210,263)       (12,210,263)
                                       ----------      ----------      -----------      ------------       ------------ 
 
Balance, December 31,
      1997                              2,832,401         212,430       25,547,395       (29,675,136)        (3,915,311)
Issued for conversion
      of notes payable                 10,773,292         807,999          138,835                              946,834
Issued for convertible
      note interest                       333,310          24,997           23,983                               48,980
Issued for professional
      services                            461,437          34,607          687,151                              721,758
 
Issued for services                       356,791          26,759          194,023                              220,782
Issued for conversion
      of debt                             293,000          21,975          120,291                              142,266
 
Sale of stocks                            337,153          25,287           18,265                               43,552
 
Beneficial Conversion                                                      218,154                              218,154
 
Net loss                                                                                  (1,037,608)        (1,037,608)
                                       ----------      ----------      -----------      ------------       ------------ 
Balance, December 31,                  15,387,384      $1,154,054      $26,948,097      $(30,712,744)      $ (2,610,593)
      1998                             ==========      ==========      ===========      ============       ============
</TABLE>

           See Accountants' Report and Notes to Financial Statements

                                      F-4
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                       FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                           1998                  1997
                                                                        -----------          ------------
<S>                                                                     <C>                  <C> 
Cash flows from operating activities
  Net loss                                                              $(1,037,608)         $(12,210,263)
  Adjustments to reconcile net loss to net cash
    used in operating activities
      Amortization expense                                                        -                13,786
      Depreciation expense                                                   42,160                95,811
      Common stock issued in services                                       220,782                     -
      Common stock issued for professional services                         721,758             1,372,229
      Common stock issued for interest on notes                              48,980                 6,418
      Common stock issued for conversion of debt                            142,266                     -
      Common stock issued for note restructure                                    -                     -
      Common stock for conversion of notes payable                          946,834                     -
      Charge related to beneficial conversion feature of      
        convertible notes payable/debentures                                218,154               427,000
      Write-down and valuation provision related to                                
        investment in Kaire International, Inc.                                                 4,694,038 
      Write-down of patents                                                  44,691               206,922
      Write-off of investment in Nutra Quest, Inc.                                -                87,000
      Expense related to issuance of stock 
        options/warrants for services                                             -               422,409
      Compensation expense related to below-market stock
        options granted                                                           -             1,790,000
    (Increase) decrease in
      Accounts receivable                                                    (7,828)              (31,534)
      Prepaid expenses and other assets                                      44,334               178,901
      Inventory                                                              43,208              (115,042)
    Increase (decrease) in 
      Accounts payable and accrued expenses                                (740,880)            1,244,719
                                                                        -----------          ------------
        Net cash used in operating activities                               686,851            (1,817,606)
                                                                        -----------          ------------

Cash flows from investing activities
    Purchase of furniture and equipment                                           -                (2,710)
    Investments in affiliates                                                     -            (1,017,000)
                                                                        -----------          ------------
        Net cash used in investing activities                           $         -          $ (1,019,710)
                                                                        -----------          ------------
</TABLE> 

          See Accountants' Report and Notes to Financial Statements.

                                      F-5
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                       FOR THE YEARS ENDED DECEMBER 31,

<TABLE> 
<CAPTION> 
                                                                    1998               1997
                                                                  ---------         ----------
<S>                                                               <C>               <C> 
 Cash flows from financing activities
  Payments on notes payable                                       $(760,000)        $        -
  Proceeds from the issuance of common stock and from the
    exercise of options/warrants                                     43,552          1,106,897
  Proceeds from issuance of convertible notes                             -          1,573,926
                                                                  ---------         ----------
  Net cash provided by financing activities                        (716,448)         2,680,823
                                                                  ---------         ----------
    Net decrease in cash and cash equivalents                       (29,597)          (156,493)

Cash and cash equivalents, beginning of year                         35,928            192,421
                                                                  ---------         ----------
Cash and cash equivalents, end of year                            $   6,331         $   35,928
                                                                  =========         ==========
Supplemental disclosures of cash flow information
    Interest paid                                                 $   2,751         $  106,063
                                                                  ---------         ----------
</TABLE> 

Supplemental schedule of non-cash investing and financing activities
During the year ended December 31, 1998, the Company entered into the following
non-cash transactions:
 
     Issued 11,106,602 shares of common stock for conversion of $795,000 of
     notes payable, and $80,051 of accured interest.
 
     Issued 356,791 shares of common stock for services valued at $220,782.
 
     Issued 461,437 shares of common stock for professional fees valued at
     $721,758.
 
     Issued 293,000 shares of common stock for conversion of debt valued at
     $142,266.
 
     Issued 337,153 shares of common stock for sale of stock valued at $43,552



          See Accountants' Report and Notes to Financial Statements.

                                      F-6
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Organization and Line of Business
       ---------------------------------

       Kaire Holdings Incorporated ("Kaire"), a Delaware corporation, was
       incorporated on June 2, 1986.  Effective February 3, 1998, Kaire changed
       its name to Kaire Holdings Incorporated from Interactive Medical
       Technologies, Ltd. in connection with its investment in Kaire
       International, Inc. ("KII").  The principal activity of Kaire is the sale
       of colored microspheres to pharmaceutical companies, universities,
       hospitals, and other academic centers engaged in blood flow and
       pharmaceutical research.  In connection with these sales, Kaire also
       provides a national reference and laboratory analysis service through its
       subsidiary, E-Z TRAC, Inc.

       Principles of Consolidation
       ---------------------------

       The consolidated financial statements include the accounts of Kaire and
       its wholly-owned subsidiaries (collectively the "Company"). The Company's
       subsidiaries include See/Shell Biotechnology, Inc., E-Z TRAC, Inc., Venus
       Management, Inc., and EFFECTIVE Health, Inc. Except for E-Z TRAC, Inc.,
       these subsidiaries have no operations.

       The Company's investment in KII has been accounted for using the equity
       method as more fully described in Note 3. All significant intercompany
       transactions and accounts have been eliminated.

       Estimates
       ---------

       The preparation of financial statements in conformity with generally
       accepted accounting principles requires management to make estimates and
       assumptions that affect the reported amounts of assets and liabilities
       and the disclosures of contingent assets and liabilities at the date of
       the financial statements, as well as the reported amounts of revenues and
       expenses during the reporting period. Actual results could differ from
       those estimates.

       Cash and Cash Equivalents
       -------------------------

       For purpose of the statements of cash flows, cash equivalents include
       amounts invested in a money market account with a financial institution.
       The Company considers all highly-liquid investments with an original
       maturity of three months or less to be cash equivalents. Cash equivalents
       are carried at cost, which approximates market.

                                      F-7
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

       Revenue Recognition
       -------------------

       The Company recognizes revenue at the time the product is shipped to the
       customer or services are rendered.  Outbound shipping and handling
       charges are included in net sales.  A significant portion of the
       Company's sales is within the United States. International sales are
       minimal.

       Net Loss Per Share
       ------------------

       In 1997, the Financial Accounting Standard Board ("FASB") issued
       Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
       per Share." SFAS No. 128 replaced the previously reported primary and
       fully diluted earnings per share with basic and diluted earnings per
       share.  Unlike primary earnings per share, basic earnings per share
       exclude any dilutive effects of options, warrants, and convertible
       securities. Diluted earnings per share are very similar to the previously
       reported fully diluted earnings per share.  Basic earnings per share are
       computed using the weighted-average number of common shares outstanding
       during the period.  Common equivalent shares are excluded from the
       computation if their effect is anti-dilutive.

       Inventory
       ---------

       Inventory consists entirely of health care products and is stated at the
       lower of cost or market.

       Furniture and Equipment
       -----------------------

       Furniture and equipment are recorded at cost less accumulated
       depreciation and amortization.  Depreciation and amortization are
       provided using the straight-line method over estimated useful lives of
       three to five years. Amortization of leasehold improvements is computed
       using the straight-line method over the lesser of the asset life or the
       life of the respective lease.

       Maintenance and minor replacements are charged to expense as incurred.
       Gains and losses on disposals are included in the results of operations.

       Patents
       -------

       Patents are stated at cost and are amortized using the straight-line
       method over their estimated useful lives, or their legal lives of 17
       years, whichever is shorter. Accumulated amortization on patents at
       December 31, 1998 was $79,362. The patents were completely written off in
       1998.

                                      F-8
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Research and Development
      ------------------------

      Research and development expenses consist principally of payroll and
      related expenses for development of the contrast microsphere.  All
      research and development costs are expensed as incurred.

      Income Taxes
      ------------

      The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
      requires the recognition of deferred tax assets and liabilities for the
      expected future tax consequences of events that have been included in the
      financial statements or tax returns. Under this method, deferred income
      taxes are recognized for the tax consequences in future years of
      differences between the tax bases of assets and liabilities and their
      financial reporting amounts at each period end based on enacted tax laws
      and statutory tax rates applicable to the periods in which the differences
      are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized. The provision for income taxes represents the tax
      payable for the period and the change during the period in deferred tax
      assets and liabilities.

      Fair Value of Financial Instruments
      -----------------------------------

      The Company measures its financial assets and liabilities in accordance
      with generally accepted accounting principles. For certain of the
      Company's financial instruments, including cash and cash equivalents and
      accounts payable and accrued liabilities, the carrying amounts approximate
      fair value due to their short maturities. The amounts shown for notes
      payable also approximate fair value because current interest rates offered
      to the Company for debt of similar maturities are substantially the same.

      Stock Split
      -----------

      Subsequent to year-end, the Company effected a 1-for-75 reverse stock
      split of its common stock.  All share and per share data have been
      retroactively restated to reflect this stock split.

      Stock Options
      -------------

      SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
      encourages the use of the fair value based method of accounting for stock-
      based compensation arrangements under which compensation cost is
      determined using the fair value of stock-based compensation determined as
      of the date of grant and is recognized over the periods in which the
      related services are rendered. The statement also permits

                                      F-9
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Stock Options (Continued)
      -------------------------

      companies to elect to continue using the current implicit value accounting
      method specified in Accounting Principles Bulletin ("APB") Opinion No. 25,
      "Accounting for Stock Issued to Employees," to account for stock-based
      compensation. The Company has elected to use the implicit value based
      method and has disclosed the pro forma effect of using the fair value
      based method to account for its stock-based compensation.

      Major Customers
      ---------------

      During the year ended December 31, 1997, the Company had sales to two
      major customers that accounted for approximately 14% and 47% of net sales
      and as aggregate 31% of accounts receivable at December 31, 1998. During
      the year ended December 31, 1998, there were no major customers.

NOTE 2 - GOING CONCERN

      The accompanying financial statements have been prepared in conformity
      with generally accepted accounting principles, which contemplate
      continuation of the Company as a going concern. However, the Company has
      experienced net losses of $1,034,008 and $12,210,263 for the years ended
      December 31, 1998 and 1997, respectively. In addition, the Company
      continues to use, rather than provide, cash from its operations and had a
      working capital deficit of $1,386,528 at December 31, 1998.  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 raise sufficient
      capital to fund its working capital requirements until the Company can
      generate sufficient sales volume to cover its operating expenses. 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.

      The loss for the year ended December 31, 1997 mainly is the result of the
      Company's failed acquisition attempt of Nutra Quest, Inc.  ("Nutra") and
      KII.  The operations for Nutra were terminated on or about October 1997.
      Additionally, the Company wrote-off its investment in Nutra which resulted
      in a non-recurring charge to operations of $1,540,457.  The Company also
      recorded significant impairment and valuation charge related to its
      investment in KII as described in Note 3.

                                      F-10
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998



NOTE 2 - GOING CONCERN (Continued)

      In the latter half of 1997 and in 1998, the Company took significant steps
      toward reducing losses and improving cash flow from operations, including
      the assignment of its Santa Monica property lease, significant reduction
      of its workforce, and consolidation of all California operations to its
      West Los Angeles facility. However, cash flow generated from sales and by
      its research laboratory is still insufficient to meet past operating debt,
      as well as provide for the retirement of debt securities that are coming
      due.

      Management has previously relied on equity financing sources and debt
      offerings to fund operations.  The Company's reliance on equity and debt
      financing will continue, and the Company will continue to seek to enter
      into strategic acquisitions.

NOTE 3 - INVESTMENT IN KAIRE INTERNATIONAL, INC.

      On December 9, 1997, the Company entered into an agreement with KII, a
      multi-level marketing company, and certain KII stockholders ("KII
      Stockholders") that collectively owned 3,573,351 shares, or approximately
      80%, of KII's issued and outstanding common stock.  Based on the terms of
      the agreement, the Company issued 1,576,122 shares of its common stock to
      the KII Stockholders in exchange for 3,573,351 shares of KII's common
      stock. The 1,576,122 shares issued by the Company were valued at
      approximately $3,694,000 which is equal to the number of shares issued
      multiplied by the market price of the Company's common stock at the date
      of the transaction.  In addition to the exchange of shares, the Company
      committed to provide $3,000,000 in additional capital to KII, or the
      Company would forfeit a portion of its KII equity holdings based on
      certain provisions of the agreement.  The Company provided $1,000,000 in
      additional equity capital and committed to provide an additional $500,000,
      $500,000, and $1,000,000 by December 25, 1997, January 15, 1998, and
      February 15, 1998, respectively.

      The Company was unsuccessful in obtaining the additional $2,000,000 and
      sold to an unrelated third party 2,500,155 shares of its KII common stock
      for nominal consideration.  The purchaser of these shares agreed to
      provide KII with the additional $2,000,000 in capital, thereby relieving
      the Company of its additional $2,000,000 capital commitment described
      above.  Additionally, KII granted the Company an option to purchase
      2,500,155 shares of KII common stock for $2,000,000, which expired on
      August 5, 1998.  The Company was not able to raise sufficient funds to
      exercise this option.


      As a result of the above transactions, the Company's ownership in KII has
      been decreased from 80% to approximately 24% (1,073,196 shares), which
      occurred subsequent to December 31, 1998.  Based on the Company's
      temporary controlling

                                      F-11
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 3 - INVESTMENT IN KAIRE INTERNATIONAL, INC. (Continued)
 
      interest in KII, the Company accounted for its investment in KII using the
      equity method.

      A $2,632,000 impairment charge related to the Company's investment in KII
      was recorded due to the Company's subsequent loss of ownership interest
      and the doubtfulness of recovering this investment. Additionally, the
      Company provided a full valuation charge on the remaining balance of the
      Company's investment in KII equal to $2,062,035.

      The consolidated financial position and results of operations of KII as of
      and for the year ended December 31, 1997 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                 (unaudited)

      Condensed Statement of operations information
         <S>                                                                                    <C>
         Revenues                                                                               $  35,681,512
                                                                                                =============

         Net loss                                                                               $  (6,528,646)
                                                                                                =============

      Condensed Balance Sheet Information
         Current assets                                                                         $   2,641,881
         Non-current assets                                                                     $   1,681,795
                                                                                                -------------

           Total assets                                                                         $   4,323,676
                                                                                                =============

         Current liabilities                                                                    $   9,134,163
         Non-current liabilities                                                                       14,713
                                                                                                -------------

           Total liabilities                                                                    $   9,148,882
                                                                                                =============

           Stockholders' deficit                                                                $  (5,024,842)
                                                                                                =============
</TABLE>
NOTE 4 - FURNITURE AND EQUIPMENT

     Furniture and equipment at December 31, 1998 consisted of the following:

<TABLE>
           <S>                                                                                  <C>
           Furniture and equipment                                                              $     460,076
           Leasehold improvements                                                                     431,397
                                                                                                -------------

                                                                                                      891,474
           Less accumulated depreciation and amortization                                             875,438
                                                                                                -------------
                  Total                                                                         $      16,035
                                                                                                =============
</TABLE>

                                      F-12
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 4 - FURNITURE AND EQUIPMENT (continued)

     Depreciation and amortization expense for the years ended December 31, 1998
     and 1997 was $42,159 and $95,811, respectively.

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
     Accounts payable and accrued expenses at December 31, 1998 consisted of the
     following:

<TABLE>
               <S>                                                                   <C>
               Accounts payable                                                       $   356855
               Accrued professional and related fees                                     237,339
               Accrued compensation and related payroll taxes                            225,703
               Accrued interest payable                                                  132,597
               Other accrued expenses                                                    578,571
                                                                                     -----------
               Total                                                                  $1,531,065
                                                                                     ===========
</TABLE>

NOTE 6 - CONVERTIBLE NOTES PAYABLE AND DEBENTURES

     During October through December 1997, the Company issued 8% convertible
     debentures due three years from the date of issuance.  The debentures are
     convertible beginning with the 41st day after issuance and at a conversion
     price equal to 70% of the average closing bid price of the Company's common
     stock during the last five days prior to the conversion date.  In
     connection with the issuance of these debentures, the Company recorded
     additional interest amounting to $364,000 related to the beneficial
     conversion feature of the debentures.  The note holders have certain
     registration rights. At December 31, 1998, convertible debentures
     outstanding aggregated to $850,000.

     During January through May 1997, the Company issued convertible notes
     aggregating to $479,655, which are due in, the same months in 2000.  The
     notes have a stated interest rate of 10% per annum, which interest is
     payable semi-annually.  The notes are convertible at $9.38 per share, which
     approximated the average trading price of the Company's common stock. At
     December 31, 1998, $469,655 of these notes were outstanding.


     During 1996, the Company began the placement of callable convertible notes
     with interest at the rate of 10% per annum, payable semi-annually, and
     convertible into restricted common shares three years from the date of
     issuance at $9.38 per share.

                                      F-13
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 6 - CONVERTIBLE NOTES PAYABLE AND DEBENTURES (Continued)


     The notes are callable by the Company after six months from the date of
     issuance at a premium of 103% of face value on or before December 31, 1998,
     102% of face value on or before December 31, 1998, and 101% of face value
     if called on or before December 31, 1999. Upon closure of the offering, the
     Company is to maintain a $100,000 sinking fund until such time as it
     realizes positive cash flow from operations of $10,000 per month for three
     consecutive months. As of December 31, 1998 no sinking fund had yet been
     established. As of December 31, 1998, notes aggregating to $612,655 were
     outstanding.

     During September 1996, the Company issued $100,000 in convertible notes due
     in 1999 with interest payable in restricted common shares, payable
     quarterly, and are convertible at $9.38 per common share.  The note holders
     also received 666,667 warrants to purchase common shares at $9.38 per
     share, which are exercisable until September 1999.  During September 1997,
     the exercise price of the warrants was decreased to $4.50 per share.


     In October 1996, the Company raised $200,000 by issuing convertible notes
     with a rate of 10% per annum and convertible, in whole or part, into common
     shares at a price of $9.38 per share, to be issued under the exemption
     provided by Reg. S.  The note holder also received 1,333,333 warrants to
     purchase common shares at $9.38, valid until October 1999.


     During 1996, the Company converted outstanding professional fees of
     $142,078 into 600,000 shares of restricted common stock and a note of
     $50,000 with interest at 8% per annum, principal and interest of $5,185
     payable monthly for ten months beginning January 2, 1997, and without a
     stated principal payment requirement.  As of December 31, 1998 the Company
     was delinquent in paying this obligation.


     On March 26, 1998, the Company issued 8% convertible debentures with face
     amounts of $30,000, $19,015, and $10,985.  Each of these debentures were
     due two years from the date of issuance. On March 30, 1998, the Company
     issued a 6% $100,000 convertible debenture for $88,000, which matures 5
     years from the date of issuance. The debentures are convertible at 35%
     discount of the market price of common stock at the time of conversion. In
     connection with issuance of these debentures, the Company recorded
     additional interest amounting to $86,154 related to the beneficial
     conversion feature of the debentures.   These debentures were converted
     into 940,420 shares of the Company's common stock during the year ended
     December 31, 1998.

                                      F-14
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 6 - CONVERTIBLE NOTES PAYABLE AND DEBENTURES (Continued)

     These convertible notes payable and debentures are scheduled to mature as
     follows:


<TABLE>
<CAPTION>
           Year Ending
           December 31,
           ------------
           <S>                                              <C>
                                                             $
               1999                                                950,445
               2000                                                289,655
                                                             -------------

                                                             $   1,240,100
                                                             =============
</TABLE>

NOTE 7 - INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                              1998                    1997
                                                                          -------------           -------------
       <S>                                                                <C>                     <C>
       Current
         Federal                                                           $          -            $          -
         State                                                                    3,600                   4,000
                                                                           ------------            ------------

                                                                                  3,600                   4,000
                                                                           ------------            ------------
       Deferred                                                                       -                       -
         Federal
         State                                                                        -                       -
                                                                                      -                       -
                                                                           ------------            ------------
                         Provision for income taxes                        $      3,600                   4,000
                                                                           ============            ============
</TABLE>
                                                                               

                                      F-15
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


     NOTE 7 - INCOME TAXES (Continued)

     A reconciliation of the provision for income tax expense with the expected
     income tax computed by applying the federal statutory income tax rate to
     income before provision for (benefit from) income taxes for the years ended
     December 31 is as follows:


<TABLE>
<CAPTION>
                                                                          1998                1997
                                                                                         --------------
     <S>                                                            <C>                  <C>
     Income tax provisions (benefit)                                           34.0%              (34.0)%
       computed at federal statutory tax rate

     State taxes, net of federal benefit                                       (0.3)               (0.1)

     Increase in the valuation allowance                                      (34.0)               34.0
                                                                    ---------------      --------------

          Total                                                                (0.3)%              (0.1)%
                                                                    ===============      ==============
</TABLE>
                                                                                

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

<TABLE>
<CAPTION>
                                                                            1998                  1997       
                                                                    ---------------      -----------------   
     <S>                                                            <C>                  <C>                 
     Deferred tax asset                                                                                      
           Net operating loss carryforwards                         $     6,009,043      $       7,877,695   
           Impairment of assets                                           2,032,518              2,099,571   
           Options/warrants                                               1,103,734               1,103734   
           Inventory capitalization                                          99,654                 99,654   
           Other                                                              3,074                  3,074   
                                                                    ---------------      -----------------   
                                                                                                             
                                                                          9,248,024             11,183,728   
     Valuation allowance                                                 (9,248,024)           (10,519,338)  
                                                                    ----------------     -----------------   
                                                                                                             
                                                                                   -               664,390   
                                                                                                             
     Deferred tax liability                                                                                  
           State income taxes                                                      -              (664,390)  
                                                                    ----------------     -----------------   
                                                                                                             
           Net deferred tax asset                                   $              -     $               -   
                                                                    ================     =================   
</TABLE>

                                      F-16
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 7 - INCOME TAXES (Continued)

     At December 31, 1998, the Company has available approximately $15,000,000
     and $9,500,000 in net operating loss carryforwards available to offset
     future federal and state income taxes, respectively, which expire through
     2013 and 2003, respectively.

     Tax rules impose limitations on the use of net operating losses following
     certain changes in ownership.  Such a change occurred in 1997, which will
     limit the utilization of the net operating losses in subsequent years.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

     Litigation
     ----------

     Prior to June 1992, the Company, in executing a private placement, issued
     approximately 2,506,982 shares of the Company's common stock to
     individuals. This placement was structured in reliance upon the advice of
     the Company's then securities counsel and was believed that the shares
     issued qualified for exemption from registration under federal and state
     securities laws. However, certain subsequent resales of these shares,
     commencing in June 1992, by the original purchasers or their transferees,
     raised an issue as to whether a technical distribution occurred that might
     have required either the original shares issued or the shares resold to
     have been registered. All of the foregoing resales were either directly
     effected or arranged for by Clark M. Holcomb.

     The Seattle Regional Office of the Federal Trade Commission (the "FTC") had
     advised the Company that it believed the Company's fat sequesterant
     product, which was marketed by KCD, a former licensee, under the name
     "SeQuester," had been improperly represented in advertising claims, and
     that the sequesterant product, when previously marketed by the Company
     under the name "Lipitrol," also was improperly represented in advertising
     claims. (This product is no longer marketed by Kaire Holdings).

     On June 16, 1996, the FTC filed a complaint be filed against the licensee,
     the Company, and certain individuals in connection with the foregoing.
     Subsequently, the Company and the FTC agreed upon a proposed settlement in
     which the Company would consent to a permanent injunction prohibiting it
     from making misrepresentations relating to weight loss or weight reduction
     products or services, or with respect to tests or studies relating to such
     programs or services. In addition, the Company would pay consumer redress
     to the FTC in an aggregate amount of $35,000 over a period of twelve
     months. The Company's Board of Directors voted to accept the proposal in
     March 1996, which was formally approved by the FTC in June 1997. Final
     payment was made to the FTC on April 16, 1998.

                                      F-17
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


 NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)

     Litigation (continued)
     ----------------------

     In February 1992, Medical Funding of America ("MFA") leased to Tri-County a
     Siemens Mobile Magneton Impact MRI System with a Van. On or about June 24,
     1992, Siemens and MFA entered into a loan and security agreement in the
     amount of $2,019,496, which was paid directly to Siemens Medical Systems,
     Inc. On or about March 1, 1995, Siemens, MFA, Tri-County, and Venus
     Management (an Interactive Medical Technologies (Kaire Holdings) subsidiary
     ("Kaire") entered into a transfer of interest agreement whereby Kaire gave
     its corporate guaranty of all of Venus' obligations under this agreement.
     Venus and MFA defaulted on the loan, and on April 2, 1997, Siemens Credit
     Corporation filed a civil action for the accelerated amount due plus costs.
     This action is still pending. On or about October 9, 1997, a Transfer of
     Interest Agreement was drawn up between Venus Management, Siemens Credit
     Corporation, and Medical Management, Inc. ("CMI," NYSE symbol CMI) whereby
     CMI would take over the lease. CMI took possession of the MRI. All parties
     executed the agreement, except Siemens, who continued to negotiate with CMI
     in an attempt to get CMI to pay all of the arrearages owed Siemens. At
     present CMI and Siemens are still negotiating over the terms of the
     agreement. It is the opinion of the Company's management that its
     obligations under this agreement have been assigned and that Siemens will
     not pursue this matter any further.

     In October 1997, the Chief Executive Officer of Nutra Quest, Inc. (the
     "CEO") considered a wholly owned subsidiary of the Company was terminated.
     On or about that time, the CEO took possession of and removed certain
     company financial and administrative records of the Company and disputed
     the Company's ownership of Nutra Quest, Inc. The Company obtained a
     permanent injunction preventing the CEO from representing himself as Nutra
     Quest, Inc. and filed a complaint concerning ownership of Nutra Quest, Inc.
     The CEO appealed the injunction and served the Company a cross complaint in
     July 1998. Concerning the Appeal, Nutra Quest's opening appellate brief was
     due on September 11, 1998. Concerning the Cross-Complaint, on August 21,
     1998, the Company filed the following motions: 1) Demurrer to Cross-
     Complaint, 2) Motion to Strike Cross-Complaint, and 3) Motion to Dismiss
     Cross-Complaint.

     On November 3, 1998, the respective parties engaged mediation and
     successfully and completely resolved all claims. The settlement is a "walk
     away" for all involved and does not require payment or receipt of any funds
     or transfer of any assets or property.  The effect of the CEO's actions
     against the Company in 1998 permanently damaged Nutra Quest, Inc.'s
     business to the extent that the Company had terminated its operation in
     December 1997. The amount invested in Nutra Quest, Inc. was written off in
     1997.

                                      F-18
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)

     Litigation (continued)
     ----------------------

     In July 1998, M&A West, Inc. a Nevada corporation, filed a Complaint
     against the Company claiming acts that constitute a breach of action. M&A
     West, Inc. is a public relations firm that was contracted to help the
     Company obtain additional funding through the creation of interest in its
     stock. Kaire contends that M&A West, Inc. did not perform as contracted and
     in turn filed an answer and a counterclaim for return of compensation paid.
     The motion was settled March 29, 1999. The settlement is a "walk away" for
     all involved and does not require payment or receipt of any funds or
     transfer of any assets or property.

     On November 18, 1998, an ex-employee, who was released from the Company in
     January 1998 due to downsizing, filed suit against the Chief Executive
     Officer and the Company for sexual harassment/discrimination, failure to
     maintain a work environment free from harassment, wrongful
     termination/constructive discharge in violation of public policy, breach of
     implied-in fact contract, breach of covenant of good faith and fair
     dealing, intentional infliction of emotional distress, negligence, and
     retaliation. The complaint was served the last week of December 1998. The
     damages are as follows: special damages - $250,000, general damages -
     $1,000,000, and punitive damages - $3,000,000.  The response to the
     complain was filed January 29, 1999 with the discovery process to begin
     shortly thereafter. The status conference is scheduled for June 18, 1999.
     It is the opinion of the Company that there is no basis for the above
     claims; however, there can be no assurance that the Company will prevail.


     Except as otherwise specifically indicated above, management believes that
     the Company doesn't have any material liability for any lawsuits,
     settlements, judgments, or fees of defense counsel which have not been paid
     or accrued as of December 31, 1998. However, there can be no assurance that
     the Company will prevail in any of the above proceedings.  In addition, the
     Company may be required to continue to defend itself resulting in
     substantial additional expense. In the event the Company is unable to pay
     the defense costs associated with the foregoing, an unfavorable settlement
     or judgment could be awarded against the Company which could have a
     material adverse effect upon the Company.

     Guarantee of Lease Payments
     ---------------------------

     The Company's magnetic resonance imaging ("MRI") systems (the "Unit")
     currently is installed in a mobile van at an operating site in Jefferson
     Valley, New York and has been in use since September 1992. It is leased to
     Tri-County Mobile MRI, L.P. ("Tri-County"), whose general partner is
     Diagnostics Resource Funding.

                                      F-19
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)

     Guarantee of Lease Payments (continued)
     ---------------------------------------

     This lease provides for monthly payments of $37,926 to Venus Management,
     Inc. ("VMI") through August 1999 and $68,589 in September 1999 (with such
     payments being guaranteed by Medical Funding of America, Inc. ("MFA")), and
     VMI is required to make monthly installment payments (which include
     interest at 10.5% per annum on the unpaid principal balance) for the Unit
     to a third party finance company of $32,360 through August 1999 and $68,589
     in September 1999. This lease provides for a purchase option at the
     expiration of the initial term of such lease equal to the then fair market
     value of the Unit.


     Tri-County was delinquent in making certain of its lease payments to VMI
     under the terms of the lease agreement concerning the Unit, and MFA failed
     to make these payments to VMI under its guarantee of Tri-County's payments
     to VMI.  Accordingly, VMI had not made certain payments due to the third-
     party finance company for the Unit. As a result, the third-party finance
     company issued a notice of default to the Company. Tri-County is currently
     in discussions with the third-party finance company to restructure the
     obligation, to assume the debt, and to take title to the Unit.  It is
     expected that the third-party finance company will accept the restructure,
     and the Company will release its title to the equipment in exchange for the
     third-party finance company releasing the Company from its debt obligation.
     Accordingly, the Company has provided $63,450 to write off the Company's
     net investment in this equipment, including the lease receivable offset by
     the remaining debt and interest payable.  However, if the parties are
     unable to resolve this matter, it is likely that the third-party finance
     company will institute an action against the Company, VMI, and Tri-County
     for the balance due, plus other costs and relief.


     The Company formerly guaranteed lease payments for an MRI machine, which
     was leased by one of the Company's subsidiaries.  The machine is no longer
     in the Company's possession as it was transferred to an unrelated third
     party that has assumed the lease payments.  Accordingly, the equipment and
     related note payable have been removed from the Company's balance sheet,
     which resulted in an immaterial change to operations.  At December 31, 1998
     the Company's guarantee totaled approximately $1,200,000.

                                      F-20
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)

     The Company formerly leased office facilities in Santa Monica under an
     operating lease, which has been assigned, to an unrelated third party.  The
     Company remains continently liable for the lease payments through the term
     of the lease, which expires in September 1999. Total lease payments through
     the expiration date amount to approximately $39,000.

     Employment and Consulting Agreements
     ------------------------------------

     The Company has employment agreements with its two executive officers that
     expire in June 2002.  These are renewable thereafter for additional three-
     year terms.  The agreements may be terminated by either party with a
     written notice six months prior to the expiration date of the initial term
     or any renewal term.  The agreements provide for a monthly base salary with
     specified increases during the passage of time.  A five-year option to
     purchase 200,000 shares of the Company's common stock at the price of $3.75
     per share has been granted to each executive officer.  Any compensation,
     which has been accrued, but not paid, may be paid to the officers in cash
     or in the form of common stock valued at $3.75 per share.  In addition,
     interest will be paid on accrued compensation at a rate of 8% per year.
     Both officers received 100,000 shares of the companies stock during 1998
     with a market value of $90,000 as partial payment of these liabilities.


     The Company also has an employment agreement with its Chief Financial
     Officer, which expired in June 1998.  The agreement is renewable thereafter
     automatically for twelve-month periods, unless written notice is received
     by the employee ninety days prior to the expiration date.  The agreement
     provides for a monthly base salary along with 8,000 shares of the Company's
     common stock for each twelve-month period.  The Company also had a
     commitment to issue 26,667 shares of common stock to the Chief Financial
     Officer in connection with the Company's acquisition efforts and has an
     accrual for $46,000 at December 31, 1998 related to such services.


     The Company has various consulting agreements that provide for issuance of
     the Company's common stock and/or stock options/stock purchase warrants in
     exchange for services rendered by the consultants.  These agreements relate
     primarily to raising of capital and professional services rendered in
     connection with the Company's acquisition efforts.

                                      F-21
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


 NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)

     Leases (continued)
     ------------------

     The Company leases a facility for its corporate office and certain office
     equipment under non-cancelable operating lease agreements that expire from
     1999 through 2001.  Future minimum lease payments under these non-
     cancelable operating leases are as follows:


<TABLE>
<CAPTION>
                     Year Ending
                     December 31,
                     ------------                          
 
                     <S>                                                    <C>
                         1999                                               $        56,142
                         2000                                                         1,428
                                                                            ---------------
                           Total                                            $        57,570
                                                                            ===============
</TABLE>


     Rent expense for the years ended December 31, 1998 and 1997 was $90,144 and
     $100,761 respectively.

NOTE 9 - STOCKHOLDERS' DEFICIT

     Common Stock
     -------------

     During the year ended December 31, 1998, the Company issued 34,607 shares
     of common stock for professional services valued at $721,758, based on the
     closing price of the Company's common stock on the date of issuance.

     During the year ended December 31, 1998, the Company amended its Stock
     Compensation Plan, which authorized the issuance of 1,316,667 shares of the
     Company's common stock to compensate consultants of the Company.  As of
     December 31, 1998, there are 621,667 shares issuable under the plan.

 Stock Options
 -------------

     The Company has adopted only the disclosure provisions of SFAS No. 123.  It
     applies APB Opinion No. 25 and related interpretations in accounting for
     its plans and does not recognize compensation expense for its stock-based
     compensation plans other than for restricted stock and options issued to
     outside third parties. If the Company had elected to recognize compensation
     expense based upon the fair value at the grant date for awards under this
     plan consistent with the methodology prescribed by SFAS No. 123, the
     Company's net loss and loss per share would be reduced to the pro forma
     amounts indicated below for the years ended December 31:

                                      F-22
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)

<TABLE>
<CAPTION>
                                                                            1998                       1997
                                                                      ---------------         --------------------
      <S>                                                             <C>                     <C>
      Net loss
             As reported                                              $      (905,608)        $        (12,210,263)
             Pro forma                                                $      (905,608)        $        (12,210,263)
      Basic and diluted loss per common share
             As reported                                              $         (0.13)        $             (14.40)
             Pro forma                                                $         (0.13)        $             (14.40)
</TABLE>
                                                                                
     Options are granted at prices are equal to the current fair value of the
     Company's common stock at the date of grant.  The vesting period is usually
     related to the length of employment or consulting contract period.

     The fair value of these options was estimated at the date of grant using
     the Black-Scholes option-pricing model with the following weighted-average
     assumptions for the year ended December 31, 1998 and 1997: dividend yield
     of 0%; expected volatility of 80% and 40%; risk-free interest rate of 6.0%
     and 5.6%, respectively; and expected life of 0.2 to 3 years.

     The weighted-average fair value of options granted during the years ended
     December 31, 1998 and 1997 was as follows:

 Stock Options (Continued)
 -------------------------

<TABLE>
<CAPTION>
                                                                                1997                   1998
                                                                          -------------          -------------
     <S>                                                                  <C>                    <C> 
     Exercise price exceeds grant date market price                       $        0.75          $         -0-
     Exercise price equal to grant date market price                      $        0.75          $         -0-
     Exercise price less than grant date market price                     $        3.75          $         -0-
</TABLE>
                                                                                
     The Black-Scholes option valuation model was developed for use in
     estimating the fair value of traded options, which have no vesting
     restrictions and are fully transferable. In addition, option valuation
     models require the input of highly subjective assumptions including the
     expected stock price volatility. Because the Company's employee stock
     options have characteristics significantly different from those of traded
     options, and because changes in the subjective input assumptions can
     materially affect the fair value estimate, in management's opinion, the
     existing models do not necessarily provide a reliable single measure of the
     fair value of its stock options. .  In 1998, the market share price has
     decreased to levels significantly below the per share option/warrant
     exercise price.  Accordingly, the value of the options granted during 1998
     are deemed to be deminimus.

                                      F-23
<PAGE>
 
                          KAIRE HOLDINGS INCORPORATED
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


   NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)

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

<TABLE>
<CAPTION>
                                                         Warrants               Weighted
                                                           And                  Average
                                                      Stock Options             Exercise
                                                       Outstanding                Price
                                                    -----------------        ---------------
     <S>                                            <C>                      <C>    
     Outstanding, December 31,                                
     1996 (restated)                                          226,617        $         26.25
         Granted                                              584,667        $          4.50
         Exerised                                             (40,000)       $          8.25
         Expired/Cancelled                                    (46,009)       $         62.25
                                                    -----------------
 
     Outstanding, December 31,1997                            725,185        $          9.30
         Granted                                               695,00        $           .60
         Expired/Cancelled                                    (14,493)       $        144.03
                                                    -----------------
 
     Outstanding December 31, 1998                          1,405,507        $          3.61
                                                    =================
 
     Exercisable, December 31, 1998                         1,379,025        $          3.56
                                                    =================
 
</TABLE>

     During 1998, the trading price of the company's common stock fell below the
     $.075 par value of stock. During this period, the conversion of convertible
     notes payable to common stock resulted in common stock being issued at less
     than par value.  In 1998, $492,430 was charged to paid in capital for these
     transactions.

     In connection with the sale of 66,667 shares of the Company's common stock
     for $450,000 in 1997, the Company issued to investors' 40,000 warrants to
     purchase common stock at an exercise price of $6.75 per share

NOTE 10 - SUBSEQUENT EVENTS

     Subsequent Events
     -----------------

     On March 15, 1999 the company's Board of Directors approved the issuance of
     7,000,000 shares of common stock to the President and Chief Executive
     Officer for full settlement of amounts due for prior services.

     The President of the company resigned effective April 8, 1999.

                                      F-24
<PAGE>
ITEM 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

     A Change in accountants was previously reported on Form 8-K dated April 9,
1999. There were no disagreements with the Company's prior accountants over
accounting or reporting matters.
 
                                    PART III

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

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

<TABLE>
<CAPTION>

Name                     Age     Office                                 Since
----                     ---     ------                                 -----
<S>                      <C>     <C>                                    <C>

Steven R. Westlund        53     Chairman of the Board &                 1995
                                 Chief Financial Officer

Peter T. Benz             39     President & Director                    1995

Owen M. Naccarato         49     Chief Financial Officer, Secretary &
                                 Director                                1997

</TABLE>

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

     Peter Benz joined the Company as Chief Financial Officer and director in
May 1995 and was elected President of the Company in December 1995. From 1989
through 1992, Mr. Benz was senior Vice President and a Partner at Gilford
Securities, Inc., a New York based banking firm. Mr. Benz was Chief Operating
Officer and a Director of Vitafort International Corporation from 1992 through
1994. From 1994 to present, Mr. Benz has been a private investor and an
investment banker. Mr. Benz is also President of 1st Miracle Group, Inc., a
publicly traded company that produces primarily low action movies and has an
interest in several health clubs. In 1982, Mr. Benz graduated from the
University of Notre Dame with a BS in Business Administration. Mr. Benz as of
March 29, 1999 has resigned as President and Board member of the Company.

     Owen Naccarato Joined the Company in July 1997 as Chief Financial Officer
and Secretary on a one- year renewable contract and was elected to the board of
directors in January 1998. Mr. Naccarato has held various operating positions,
most recently as Chief Financial Officer for Bikers Dream, Inc. a NASDAQ traded
motorcycle assembler and parts distributor and divisional vice
president/controller for Baxter Healthcare, Inc., a NYSE traded health care
manufacturer and distributor. Mr. Naccarato is a licensed attorney and is a
member of the California State Bar Association. He is also a Certified Public
Accountant.

                                      -18-
<PAGE>
 
Compliance with Section 16(a) of the Securities Exchange Act of 1934

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

     To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the company and written representations that no other
reports were required during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.

ITEM 10.  Executive Compensation

     The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered during the fiscal years
ended December 31, 1996 and 1997, respectively, to the Company's Chief Executive
Officer, President and Chief Financial Officer during such period.

                           Summary Compensation Table

<TABLE>
<CAPTION>

                                              Annual Compensation                                             Long-Term Compensation
                                                                                                                     Securities
                                   Year                                                                              Underlying
Name and Principal                Ending                                                       Other Annual         Options/Sars
     Position                   December 31             Salary              Bonus              Compensation              (#)
----------------------     ------------------     ---------------     ---------------     ------------------  ----------------------
<S>                        <C>                    <C>                 <C>                 <C>                 <C>
Steven Westlund                  1998                 $ 45,000                                          -
Chairman & CEO                   1997                 $ 49,154                                    $96,346           200,000
                                 1996                 $131,076

Peter Benz                       1998                 $ 45,000                                          -
                                 1997                 $ 30,462                                    $81,346           200,000
                                 1996                 $ 82,462
</TABLE>

                                      -19-
<PAGE>
 
                        Aggregated Option Exercises in
             Fiscal Year Ended December 31, 1998 and Option Values


<TABLE>       
<CAPTION>
                                                                                                    Value of
                                                            Number of Shares                      Unexercised
                        Shares                           Underlying Unexercised                  In The Money
                      Acquired on       Value             Options at 12/31/98                  Options at 12/31/98 (1)
      Name             Exercise        Realized      Exercisable       Unexercisable      Exercisable        Unexercisable
---------------     --------------    ----------    -------------     ---------------    -------------      ---------------
<S>                 <C>               <C>           <C>               <C>                <C>                <C>       
Steven Westlund            0             -             200,000                0                0                   0

Peter Benz                 0             -             200,000                0                0                   0

John Osborne               0             -              16,667                0                0                   0

Michael Grecko             0             -              13,333                0                0                   0

William Shell              0             -              10,000                0                0                   0

</TABLE>

(1)  The value of the Company's Common Stock for purposes of the calculation was
     based upon the average of the bid and asked prices for the common Stock as
     reported by the OTC Bulletin Board, minus the exercise price.  Since the
     above average as of 12/31/98 is less than $0.03 and the exercise price is
     $3.75, the significantly higher exercise price would qualify the options as
     not in the money.

     The company entered into a five-year employment agreement with Steven
Westlund as Chief Executive Officer of the Company as of May 15, 1997.    The
Company will compensate Mr. Westlund fifteen thousand ($15,000) dollars per
month for the months May 15, 1997 through May 15, 1998, then twenty thousand
($20,000) dollars per month for the months May 15, 1998 through May 15, 1999,
then increasing by fifteen percent (15%) per year for the remainder of this
Employment Agreement.  Mr. Westlund also received a five-year option to purchase
two hundred thousand (200,000 post-reverse split) shares of the company's common
stock at the price of $3.75 (post-reverse split price) per share.  Also included
in this Agreement is a provision to compensate the employee for his efforts if
the employer is either acquires, is acquired or merges with another entity in an
amount equal to two and one half (2.5%) percent of the total value of such
transaction.

     The company entered into a five-year employment agreement with Peter Benz
as President of the Company as of May 15, 1997.    The Company will compensate
Mr. Benz twelve thousand ($12,000) dollars per month for the months May 15, 1997
through May 15, 1998, then fifteen thousand ($15,000) dollars per month for the
months May 15, 1998 through May 15, 1999, then increasing by fifteen percent
(15%) per year for the remainder of this Employment Agreement.  Mr. Benz also
received a five-year option to purchase two hundred thousand (200,000 post-
reverse split) shares of the company's common stock at the price of $3.75 (post-
reverse split price) per share. .  Also included in this Agreement is a
provision to compensate the employee for his efforts if the employer is either
acquires, is acquired or merges with another entity in an amount equal to two
and one half (2.5%) percent of the total value of such transaction.

                                      -20-
<PAGE>
 
     Mr. Westlund and Mr. Benz were paid partial compensation in 1997 with the
remainder being accrued.  In calendar year 1998, Mr. Westlund and Mr. Benz have
not received any compensation as of August 31, 1998.

     In May 1993, the Company's shareholders approved the adoption of Stock
Option Plans pursuant to which options covering a total up to 1,500,000 shares
of the Company's Common Stock may be granted to the Company's officers,
directors, employees and other such persons providing services to the company.
No shares have been granted under such plan.

     The Company offers disability insurance to all its employees and health
insurance to certain employees.  The Company has adopted no retirement, pension,
profit sharing or other similar programs.

ITEM 11.  Security Ownership of Certain Beneficial Owners and Management

  The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1998 based on
information available to the Company by (I) each person who is known by the
Company to own more than 5% of the outstanding Common Stock based upon reports
filed by such persons within the Securities and Exchange Commission; (ii) each
of the Company's directors; (iii) each of the Named Executive Officers; and (iv)
all officers and directors of the Company as a group.

<TABLE>
<CAPTION>

Name and Address of                     Number of Shares
  Beneficial Owner                     Beneficially Owned(1)   Percentage
------------------------------------   ------------------      ----------
<S>                                    <C>                     <C>     
Steven Westlund                              240,000(2)          46.0%
2139 Pontius Ave.
Los Angeles, CA 90025

Peter Benz                                   226,667(2)          43.5%
2139 Pontius Ave.
Los Angeles, CA 90025

John Osborne                                  16,667(2)           3.2%
2139 Pontius Ave.
Los Angeles, CA 90025

Michael Grecko                                22,299(3)           4.3%
2139 Pontius Ave.
Los Angeles, CA 90025

William Shell                                 15,573(4)           3.0%
2139 Pontius Ave.
Los Angeles, CA 90025

Directors and Officers as a Group
Group (two persons)                          466,667(5)          85.7%

</TABLE>

                                      -21-
<PAGE>
 
(1)  Included for purposes of this calculation are shares of Common Stock
     outstanding as of December 31, 1998.
 
(2)  Amounts are options that are currently exercisable.

(3)  Includes 13,333 options that are currently exercisable

(4)  Includes 10,000 options that are currently exercisable

(5)  All 466,667 options are currently exercisable.

ITEM 12.  Certain Relationships and Related Transaction

     There were no transactions during the last two years, or proposed
transactions, to which the small business issuer was or is to be a party, in
which any executive officer or director, or any nominee for election as a
director, or any individual with security ownership of certain beneficial owners
and management and any member of the immediate family of the aforementioned, had
or is to have a direct or indirect material interest.

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

     (a) Exhibits

<TABLE>
     <C>    <S>
     3.      Articles of Incorporation and bylaws of the Company, as amended. (1)
     4.1     Form of Warrant Agreement between the Company and Jersey Stock
             Transfer and Trust Company, including the Form of Warrant (as
             modified). (4)
     4.2     Form of Stock Purchase Warrant (issued with promissory note). (2)
     10.1    License Agreement between F.A.T. Co. Research, Inc. and Dynamic
             Products, Inc. (1)
     10.2    Agreements between F.A.T. Co. Research, Inc. and Dr. Shell and Jackie
             See for Development and Exploitation of Patented Invention. (1)
     10.3    Consulting Agreements between See/Shell and Drs.  Dr. Shell and
             Jackie See. (1)
     10.4    Original Equipment Manufacturing Agreement between Olympus
             Corporation and E-Z Trac, Inc. (3)
     10.5    Distribution Agreement between E-Z Trac Inc., and Triton Technology,
             Inc. (3)
     10.6    Employment Agreement between the Company and William Peizer, Jr.
             dated December 24, 1992. (4)
     10.7    Agreement between William Peizer, Jr. and Clark M. Holcomb dated
             February 1, 1993. (4)
     10.8    Exchange of Stock Agreement and Plan of Reorganization among the
             Company, Venus Management, Inc. and the stockholders of Venus
             Management, Inc. (4)
     10.9    Co-Management Agreements dated June 30, 1993 between Venus
             Management, Inc. and Medical Funding of America, Inc. (4)
     10.10   Agreement dated June 30, 1993 between Venus Management, Inc. and
             Medical Funding of America, Inc. (4)
     10.11   Letter dated August 20, 1993 between the Company and Lewis,
             D'Amato, Brisbois & Bisgaard re Debt Conversion Agreement. (4)
     10.12   Letter agreement dated March 13, 1993 between the Company and Clark
             M. Holcomb; Sale of Stock Agreement, dated November 1, 1992 by and
             between the Company and Clark M. Holcomb; and related
             Promissory Note from Clark M. Holcomb to the Company. (4)

</TABLE>

                                      -22-
<PAGE>
 
<TABLE>
     <C>     <S>
     10.13   Agreement concerning MRI System, dated as of February 10, 1994 by
             and between Siemens Credit Corporation, Venus Management, Inc., the
             Company, Medical Funding of America, Inc. and Tri-County Mobile
             MRI, L.P. and related Transfer of Interest Agreement, Corporate
             Guaranty by the Company, Amendment to Promissory Note of Medical
             Funding of America, Inc. payable to Siemens Credit Corporation and
             Agreement concerning Lease Payment between Venus Management, Inc.
             and Tri-County Mobile MRI, L.P. (4)
     10.14   Agreement dated August 27, 1992 by and between Dr. William Shell
             and Clark M. Holcomb related to shares of the Company's Common
             Stock owned by Dr. Shell. (4)
     10.15   Agreement dated September 23, 1993 by and between Ladenburg,
             Thalmann Co., Inc. and the
             Company. (4)
     10.16   Consulting Agreement for Financial Public Relations dated as of
             February 25, 1994 by and between the Company and Robert Bienstock
             and Richard Washor. (4)
     10.17   License Agreement, dated March 23, 1994 by and between Effective
             Health, Inc. and KCD Incorporated. (4)
     10.18   Professional Services Agreement, dated April 15, 1994 by and
             between RAI Finanz, and the Company. (4)
     10.19   Consulting Agreement and Stock Plan dated as of August 25, 1994 by
             and between the Company and Hy Ochberg. (4)
     10.20   Memorandum of Understanding dated as of August 16,1994 by and
             between the Company and Raifinanz (USA), Inc. (4)
     10.21   Resonex Equipment Lease as of June 30, 1993 between Venus
             Management Company and Medical Funding of America. (4)
     10.22   Becton Dickenson Supply Agreement dated November 2, 1994.
     10.23   Form 12b-25 dated March 30,1995.
     10.24   2nd & Final Revised Proposal to Acquire Pastels International,
             Incorporated (6)
     10.25   Revised Proposed Acquisition of Nutra Quest, Incorporated (6)
     10.26   Number skipped
     10.27   The 1998 Stock Compensation Plan (7)
     10.28   The Amendment to the 1998 Stock Compensation Plan (8)
     22.1    Subsidiaries of the Company & See/Shell Biotechnology, Inc. (1)
     22.2    Subsidiaries of the Company & E-Z Trac, Inc.-Articles of
             Incorporation, Amendments and By-Laws. (1)
     22.3    Subsidiaries of the Company & Effective Health, Inc.-Articles of
             Incorporation, Amendments and By-Laws. (1)
     22.4    Subsidiaries of the Company & Venus Management, Inc. Certificate of
             Incorporation, Amendments and By-Laws. (Included in Exhibit 10.9.)
     25.     Subsidiaries of the Company. (4)
     27.     Financial Data Schedule (included only in EDGAR filing).

</TABLE> 
------------------
(1)  Previously filed as an exhibit to the Company's registration statement on
     Form S-18, file number 33-17548-NY, as amended on August 7, 1990, and
     incorporated herein by reference.

                                      -23-
<PAGE>
 
(2)  Previously filed as an exhibit to the Company's registration statement on
     Form S-18, file number 33-17548-NY, as amended on February 12, 1991, and
     incorporated herein by reference.
(3)  Previously filed as an exhibit to the Company's registration statement on
     Form S-1 8, file number 33-17548-NY, as amended on June 24, 1991, and
     incorporated herein by reference.
(4)  Previously filed as an exhibit to the Company's Registration Statement on
     Form SB-2, file   number 33-51684-NY, as amended on September 19, 1994, and
     incorporated herein by    reference.
(5)  Previously filed as an exhibit to the Company's Form 10-QSB filed for the
     quarterly period ended September 30, 1996.
(6)  Previously filed as an exhibit to the Company's Form 10-KSB filed for the
     period ended December 31, 1996.
(7)  Incorporated by reference to the Company's Form S-8 dated January 9, 1998
     and filed with the Commission on January 9, 1998.
(8)  Incorporated by reference to the Company's Form S-8 dated March 25, 1998
     and filed with the Commission on March 25, 1998.

     (b)  Reports on Form 8-K:

     The company filed the following reports on Form 8-K during the quarters
ended December 31, 1998 and March 31, 1999:

     1.  Form 8-K dated February 19, 1998 reporting a change in the Company's
independent account, a name change, a seventy - five to one reverse common stock
split, and the signing of an agreement to purchase thirty - five percent in a
Singapore company and its Mainland China multi level marketing subsidiary.

     2.  Form 8-K dated April 9, 1999 reporting a change in the Company's
independent account and the resignation of Peter Benz as the Company's President
and Board member.

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

          Kaire Holdings Incorporated

                         By:     /s/  Steven R. Westlund
                                 -----------------------
                                 Steven R. Westlund Chief Executive Officer

                         Dated:   April 16, 1999

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

/s/  Steven R. Westlund                                     April 16, 1999
----------------------------------------------
Steven R. Westlund Chief Executive Officer and
Director


/s/  Owen M. Naccarato                                      April 16, 1999
--------------------------------------------------                     
Owen M. Naccarato Chief Financial Officer and
Director

                                      -24-