SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-QSB





[X]
      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act
      of 1934




For
      the
      quarterly period ended March
      31, 2006





OR





[
      ]
      Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act
      of 1934


For
      the
      transition period from _______________ to _______________





Commission
      file number 0-21384





KAIRE
      HOLDINGS INCORPORATED


(Exact
      name of registrant as specified in its charter)








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








552
                Sespe Avenue, Suite D, Fillmore , CA
            93015(Address
                of principal executive offices)
            (Zip
                code)




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


_________________________________________________________


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





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the Registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.  Yes X  No _





Indicate
      by check mark whether the registrant is a shell company (as defined
      in


Rule
      12b-2 of the Exchange Act). (Check one): Yes [ ] No [X]





State
      the
      number of shares outstanding of each of the Registrant's classes of common
      stock, as of the latest practicable date.




Class
      of Common Stock     Outstanding
      at May 18, 2006


$.001
      par
      value      42,616,806  shares








Transitional
      Small Business Disclosure Format  Yes   No X





FORM
      10-QSB


Securities
      and Exchange Commission


Washington,
      D.C. 20549





KAIRE
      HOLDINGS INCORPORATED





Index





PART
      I -
      FINANCIAL INFORMATION





Item
      1.
      Consolidated Financial Statements





Condensed
      Consolidated Balance Sheets (unaudited) at


March
      31,
      2006 and December 31, 2005





Condensed
      Consolidated Statements of Operations (Unaudited)


for
      the
      three months ended March 31, 2006 and 2005





Condensed
      Consolidated Statements of Cash Flows (Unaudited)


for
      the
      three months ended March 31, 2006 and 2005




Notes
      to
      Condensed Consolidated Financial Statements




Item
      2.
      Management's Discussion and Analysis of Financial Condition and




Results
      of Operations.





Item
      3.
      Controls and Procedures





PART
      II.
      - OTHER INFORMATION





Item
      1.
      Legal Proceedings





Item
      2  Changes
      in Securities and Use of Proceeds





Item
      3  Defaults
      Upon Senior Securities





Item
      4.  Submission
      of Matters of a Vote to Security Holders





Item
      5  Other
      Information





Item
      6.
      Exhibits and Reports on Form 8-K





SIGNATURES












































































**Kaire
      Holdings Incorporated**


**and
      Subsidiaries**





**Consolidated
      Financial Statements**


**March
      31, 2006**





**Kaire
      Holdings Incorporated**


**and
      Subsidiaries**





**Consolidated
      Financial Statements**


**March
      31, 2006**








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











Consolidated
                Balance Sheets
            1
                -
                2Consolidated
                Statements of Operations
            3Consolidated
                Statements of Cash Flows
            4
                -
                5Notes
                to Consolidated Financial Statements
            6
                -
                29











**Kaire
        Holdings Incorporated and Subsidiaries**
 **Consolidated
        Balance Sheets**
 **As
        of March 31, 2006, and December 31, 2005**








ASSETSMarch
                31, 2006
            
            December
                31, 2005Current
                Assets
            (unaudited)
            
            (audited)Cash
                and cash equivalents
            $
            -
            
            $
            -Accounts
                receivable, trade (net of allowance for doubtfulaccounts
                of $55,000 and $55,000, respectively
            
            161,193
            
            
            95,854Inventory
            
            78,273
            
            
            67,705Deferred
                financing costs
            
            31,077
            
            
            41,317Total
                Current Assets
            
            270,543
            
            
            204,876Other
                AssetsProperty
                and equipment, net of accumulated depreciation
            
            35,593
            
            
            41,546Total
                Other Assets
            
            35,593
            
            
            41,546Total
                Assets
            $
            306,136
            
            $
            246,422









































(continued)














See
            accompanying notes to financial statements.
 -
            1
            -
 
 **Kaire
            Holdings Incorporated and Subsidiaries**
 **Consolidated
            Balance Sheets (continued)**
 **As
            of March 31, 2006, and December 31, 2005**





LIABILITIES
                AND STOCKHOLDERS’ DEFICITMarch
                31, 2006
            
            December
                31, 2005Current
                Liabilities
            (unaudited)
            
            (audited)Bank
                overdraft
            $
            5,132
            
            $
            4,634Accounts
                payable and accrued expenses
            
            603,896
            
            
            526,626Income
                tax payable
            
            647
            
            
            647Notes
                payable - related parties
            
            10,381
            
            
            10,381Advances
                from shareholders
            
            122,562
            
            
            97,937Liabilities
                of discontinued operations - Classic Care
            
            145,611
            
            
            145,611Accrued
                interest - convertible debt
            
            343,499
            
            
            319,138Convertible
                notes
            
            1,554,052
            
            
            1,373,570Derivative
                liability
            
            1,680,700
            
            
            1,497,659Warrant
                liability
            
            253,700
            
            
            126,095Total
                Current Liabilities
            
            4,720,180
            
            
            4,102,298Total
                Liabilities
            
            4,720,180
            
            
            4,102,298Stockholders’
                DeficitCommon
                stock, $0.001 par value, 900,000,000 sharesauthorized;
                37,030,442 and 35,453,897 shares issuedand
                outstanding in 2006 and 2005, respectively
            
            37,031
            
            
            35,454Additional
                paid in capital
            
            40,005,158
            
            
            39,991,758Accumulated
                deficit
            
            (44,456,233)
            
            
            (43,883,088)Total
                Stockholders’ Deficit
            
            (4,414,044)
            
            
            (3,855,876)Total
                Liabilities and Stockholders’ Deficit
            $
            306,136
            
            $
            246,422














See
            accompanying notes to financial statements.
 -
            2
            -
 
 **Kaire
            Holdings Incorporated and Subsidiaries**
 **Consolidated
            Statements of Operations**
 **For
            theThree Months Ended** **March
            31, 2006 and 2005**





2006
            
            2005(unaudited)
            
            (restated,
                unaudited)Net
                revenues
            $
            286,086
            
            $
            430,764Cost
                of goods sold
            
            213,364
            
            
            240,556Gross
                Profit
            
            72,722
            
            
            190,208Operating
                ExpensesSalaries
                and related expenses
            
            55,065
            
            
            119,747Depreciation
                and amortization
            
            5,953
            
            
            7,238General
                and administrative
            
            352,084
            
            
            251,764Selling
                expense
            
            2,781
            
            
            -Rent
            
            
            8,870
            
            
            7,291Total
                Operating Expenses
            
            424,753
            
            
            386,040Loss
                from operations
            
            (352,031)
            
            
            (195,832)Other
                Income (Expense)Interest
                expense
            
            (39,339)
            
            
            (49,931)Gain
                from change in warrant liability
            
            95,001
            
            
            41,029Gain/(loss)
                from change in derivative liability
            
            (132,274)
            
            
            (100,624)Accretion
                of convertible debt discount
            
            (131,248)
            
            
            (92,721)Debt
                issuance costs
            
            (13,253)
            
            
            (9,275)Total
                Other Income (Expense)
            
            (221,113)
            
            
            (211,522)Loss
                from continuing operations before income taxes
            
            (573,144)
            
            
            (407,354)Provision
                for income taxes
            
            -
            
            
            -Net
                Loss
            $
            (573,144)
            
            $
            (407,354)Loss
                per weighted average share of commonstock
                outstanding - basic and diluted
            $
            (0.02)
            
            $
            (0.01)Weighted-average
                shares outstanding - basic and diluted
            
            36,715,133
            
            
            30,781,798














See
            accompanying notes to financial statements.
 -
            3
            -
 
 **Kaire
            Holdings Incorporated and Subsidiaries**
 **Consolidated
            Statements of Cash Flows**
 **For
            the Three Months Ended March 31, 2006 and 2005**





2006
            
            2005Increase
                (decrease) in cash and cash equivalents:
            (unaudited)
            
            (restated,
                unaudited)Net
                loss
            $
            (573,144)
            
            $
            (407,354)Adjustments
                to reconcile net loss to net cash usedin
                operating activities:Depreciation
                and amortization
            
            5,953
            
            
            7,238Accretion
                of convertible debt discount
            
            131,248
            
            
            92,721Loss
                from change in derivative liability
            
            132,274
            
            
            100,624Gain
                from change in warrant liability
            
            (95,001)
            
            
            (41,029)Non-cash
                interest associated with derivative liabilities
            
            -
            
            
            23,317Common
                stock issued for payment of interest
            
            14,977
            
            
            -Warrants
                issued for consulting expense
            
            222,606
            
            
            -Common
                stock issued for professional services and compensation
            
            -
            
            
            150,000Amortization
                of deferred financing costs
            
            13,253
            
            
            8,125Changes
                in operating assets and liabilities:Increase
                in trade accounts receivable
            
            (65,339)
            
            
            (23,320)Increase
                in other receivables
            
            -
            
            
            (110)(Increase)
                decrease in inventory
            
            (10,568)
            
            
            32,394Increase
                (decrease) in sales tax payable
            
            (72)
            
            
            33Increase
                in accrued interest on convertible notes
            
            24,361
            
            
            26,614Increase
                (decrease) in accounts payable and accrued expenses
            
            77,342
            
            
            (94,898)Net
                cash used in operating activities
            
            (122,110)
            
            
            (125,645)Cash
                flow from investing activities:Purchase
                of property and equipment
            
            -
            
            
            (950)Net
                cash used in investing activities
            
            -
            
            
            (950)Cash
                flow from financing activities:Proceeds
                from notes payable - related parties
            
            -
            
            
            1,200Payments
                on notes payable - related parties
            
            -
            
            
            (1,300)Proceed
                from notes payable - shareholders
            
            86,371
            
            
            -Payments
                on notes payable - shareholders
            
            (61,746)
            
            
            -Payments
                on loans
            
            -
            
            
            (21,850)Proceeds
                from convertible notes payable
            
            100,000
            
            
            125,000Deferred
                financing costs
            
            (3,013)
            
            
            -Increase
                in bank overdraft
            
            498
            
            
            23,545Net
                cash generated by financing activities
            
            122,110
            
            
            126,595Net
                increase in cash and cash equivalents
            
            -
            
            
            -Cash
                and cash equivalents at beginning of year
            
            -
            
            
            -Cash
                and cash equivalents at end of period
            $
            -
            
            $
            -








(continued)





See
            accompanying notes to financial statements.
 -
            4
            -
 
 **Kaire
            Holdings Incorporated and Subsidiaries**
 **Consolidated
            Statements of Cash Flows (continued)**
 **For
            the Three Months Ended March 31, 2006 and 2005**





2006
            
            2005(unaudited)
            
            (restated,
                unaudited)**Supplementary
                disclosures of cash flow information:**Cash
                paid during the year forInterest
            $
            -
            
            $
            3,150Taxes
            $
            -
            
            $
            -





**Supplementary
      disclosures of non-cash transactions:**





During
      the three months ended March 31, 2006, the Company entered into the following
      non-cash transactions:





|· | Issued
              1,576,545 shares of common stock for the payment of interest on a
              convertible note, valued at $14,977;
|- | -----------------------------------------------------------------------------------------------------------------------------------------




|· | Issued
              a warrant to purchase 12,000,000 shares of the Company’s common stock in
              exchange for professional services valued at
              $222,606.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







During
      the three months ended March 31, 2005, the Company entered into the following
      non-cash transactions:





|· | Issued
              3,000,000 shares of common stock for professional services valued at
              $150,000.
|- | -----------------------------------------------------------------------------------------------------------------













See
            accompanying notes to financial statements.
 -
            5
            -
 
 **Kaire
            Holdings Incorporated and Subsidiaries**
 **Noted
            to Consolidated Financial Statements**
 **March
            31, 2006**


**1.**  **Summary
      of Significant Accounting Policies**





Organization
      and Line of Business





Kaire
      Holdings Incorporated (“Kaire” or “the Company”), a Delaware corporation, was
      incorporated on June 2, 1986. Effective February 3, 1998, Kaire changed its
      name
      to Kaire Holdings Incorporated from Interactive Medical Technologies, Ltd.





In
      November 2002, the Company, through its subsidiary Effective Health, Inc.,
      purchased certain assets of Sespe Pharmacy, a privately held company located
      in
      Fillmore, California. The asset acquisition was concluded on January 26, 2003.
      Sespe Pharmacy provides both retail and long-term care pharmacy services.
      Long-term pharmacy care services focus on the following: 1) helping chronically
      ill patients residing in assisted-living facilities maintain compliance with
      their medication therapies; 2) monitoring any adverse drug reactions; and 3)
      assisting the long-term care providers in monitoring patient progress.
      Specialized long-term care services include: providing the patients their
      monthly cycle medications; providing the long-term care providers with
      in-service training and drug education, including providing detailed policies
      and procedures manuals; providing monthly reviews of patient drug regimes;
      and
      processing all patient insurance claims. Specialized products include unit
      dose
      bubble pack of individual patient’s medication, secure mobile medication carts
      and emergency medication kits for night or weekend patient
      emergencies.








History





In
      1999,
      the Company formed YesRx.Com, Inc., an Internet drugstore focused on
      pharmaceuticals, health, wellness and beauty products. The Company focuses
      on
      selling drugs for chronic care as opposed to emergency needs and works mainly
      with the patient who has regular medication needs and requires multiple refills.
      This business was phased out during the year ended December 31, 2001.





In
      May
      2000, the Company acquired Classic Care, Inc. (“Classic Care”), a California
      company, organized in April 1997. Classic Care was a distributor of
      pharmaceutical products and prescription drugs to consumers at senior assisted
      living and retirement centers in the Los Angeles area. These drug sales were
      primarily paid for and billed to Medi-Cal, and the balances of the sales that
      were not covered by Medi-Cal were paid directly by individuals. In January
      2003,
      the Company voluntarily dissolved Classic Care.








Principles
      of Consolidation





The
      accompanying unaudited interim consolidated financial statements include the
      accounts of Kaire and its wholly owned subsidiaries (collectively the
“Company”). The Company’s subsidiaries include Effective Health, Inc. (dba Sespe
      Pharmacy), and YesRx.com. Intercompany accounts and transactions have been
      eliminated upon consolidation.





-
          6 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





Basis
      of Presentation





The
      accompanying unaudited interim consolidated financial statements represent
      the
      financial activity of Kaire Holdings Incorporated and its subsidiaries. The
      consolidated financial statements have been prepared in accordance with
      generally accepted accounting principles in the US. The Company’s fiscal year
      ends on December 31 each year. The financial statements and notes are
      representations of the management and the Board of Directors, who are
      responsible for their integrity and objectivity.





The
      accompanying unaudited interim consolidated financial statements represent
      the
      financial activity of Kaire Holdings Incorporated and its subsidiaries. The
      consolidated financial statements for the three months ended March 31, 2006,
      have been prepared in accordance with generally accepted accounting principles
      for interim financial information in the US and in accordance with the
      instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly,
      the
      financial statements do not include all of the information and footnotes
      required by generally accepted accounting principles for complete financial
      statements. In the opinion of management, all adjustments (consisting of normal
      recurring accruals) considered necessary for a fair presentation have been
      included. For further information, refer to consolidated financial statements
      and footnotes thereto for the fiscal quarter ended March 31, 2006, included
      herein. The consolidated financial statements include the accounts of the
      Company and its majority-owned subsidiaries. All inter-company transactions
      were
      eliminated. The financial statements and notes are representations of the
      management and the Board of Directors who are responsible for their integrity
      and objectivity.





The
      results of operations for such periods are not necessarily indicative of the
      results expected for the full fiscal year or for any future period. The
      financial statements should be read in conjunction with the consolidated
      financial statements and related notes included in the Company’s Annual Report
      on Form 10-KSB for the fiscal year ended December 31, 2005.








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 those estimates. Significant estimates include valuation of
      derivative and warrant liabilities, allowance for doubtful accounts and
      third-party contractual agreements and the net realizable value of assets of
      discontinued operations.







Cash
      and Cash Equivalents





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





-
          7 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**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.








Net
      Client Revenue





Net
      client revenue represents the estimated net realizable amounts from clients,
      third-party payors and others for sale of products or services rendered. For
      revenue recognition, revenue is recorded when the prescription is filled or
      when
      services are performed. A significant portion of revenue is from insurance
      carriers and from federal and state reimbursement programs.








Third-Party
      Contractual Adjustments





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





For
      the
      three months ended March 31, 2006, gross revenues were $306,104 less
      approximately $20,018 of contractual adjustments based on reimbursement
      contracts, resulting in net third-party contract revenues of approximately
      $286,086.








Net
      Loss per Share





Loss
      per
      common share is computed on the weighted average number of common shares
      outstanding during each year. Basic loss per share is computed as net loss
      applicable to common stockholders divided by the weighted average number of
      common shares outstanding for the period. Diluted loss per share reflects the
      potential dilution that could occur from common shares issuable through stock
      options, warrants and other convertible securities when the effect would be
      dilutive.








Inventory





Inventory
      consists primarily of pharmaceuticals and health care products and is stated
      at
      the lower of cost or market on a first-in-first-out basis.


-
          8 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





Stock
      Warrants Issued to Third Parties





The
      Company accounts for stock warrants issued to third parties, including
      customers, in accordance with the provisions of the Emerging Issues Task Force
      (EITF) Issue No. 96-18, *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services,* and EITF
      01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products).* Under
      the provisions of EITF 96-18, because none of the Company’s agreements have a
      disincentive for nonperformance, the Company records a charge for the fair
      value
      of the portion of the warrants earned from the point in time when vesting of
      the
      warrants becomes probable. Final determination of fair value of the warrants
      occurs upon actual vesting. EITF 01-9 requires that the fair value of certain
      types of warrants issued to customers be recorded as a reduction of revenue
      to
      the extent of cumulative revenue recorded from that customer.








Income
      Taxes





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








Fair
      Value of Financial Instruments





The
      Company measures its financial assets and liabilities in accordance with
      generally accepted accounting principles. SFAS NO. 107, “Disclosure about Fair
      Value of Financial Instruments,” requires certain disclosures regarding the fair
      value of financial instruments. For certain of the Company’s financial
      instruments, including cash and cash equivalents and accounts payable and
      accrued liabilities, the carrying amounts approximate fair value due to their
      short maturities. The amounts shown for notes payable also approximate fair
      value because current interest rates offered to the Company for debt of similar
      maturities are substantially the same.








Convertible
      Debt Financing and Derivative Liabilities





The
      Company has issued convertible debt securities with non-detachable conversion
      features and detachable warrants. The Company accounts for such securities
      in
      accordance with Emerging Issues Task Force Issue Nos. 98-5, 00-19, 00-27, 05-02,
      05-04 and 05-08, and Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging Activities” as amended (“SFAS
      133”).


-
          9 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





Convertible
      Debt Financing and Derivative Liabilities (continued)





In
      accordance with SFAS 133, the holder’s conversion right provision, interest rate
      adjustment provision, liquidated damages clause, cash premium option, and the
      redemption option (collectively, the debt features) contained in the terms
      governing the Notes are not clearly and closely related to the characteristics
      of the Notes. Accordingly, the features qualified as embedded derivative
      instruments at issuance and, because they do not qualify for any scope exception
      within SFAS 133, they were required by SFAS 133 to be accounted for separately
      from the debt instrument and recorded as derivative financial instruments.





At
      each
      balance sheet date, the Company adjusts the derivative financial instruments
      to
      their estimated fair value and analyzes the instruments to determine their
      classification as a liability or equity. As of March 31, 2006, the estimated
      fair value of the Company’s derivative liability was $1,680,700, as well as a
      warrant liability of $253,700. As of December 31, 2005, the estimated fair
      value
      of the Company’s derivative liability was $1,497,659, as well as a warrant
      liability of $126,095. The estimated fair value of the debt features was
      determined using the probability weighted averaged expected cash flows/Lattice
      Model. The model uses several assumptions including: historical stock price
      volatility (utilizing a rolling 120 day period), risk-free interest rate
      (3.50%), remaining maturity, and the closing price of the Company’s common stock
      to determine estimated fair value of the derivative asset. In valuing the debt
      features at March 31, 2006, the Company used the closing price of $0.019 and
      the
      respective conversion and exercise prices for the warrants. For the year ended
      December 31, 2005, there was a decrease in the market value of the Company’s
      common stock to $0.025 from $0.055 at December 31, 2004.








Reclassifications





Certain
      amounts in the 2005 financial statements have been reclassified to conform
      to
      the 2006 presentations. These reclassifications had no effect on previously
      reported results of operations or retained earnings.








Stock-Based
      Compensation





Effective
      January 1, 2005, the Company has adopted the fair value based method of
      accounting prescribed in Financial Accounting Standards Board Statement No.
      123R
      (Accounting for Stock-Based Compensation) for its employee stock option plans.





Specifically,
      the Company adopted SFAS No. 123R using the “prospective method” This statement
      replaced FAS-123, *Accounting
      for Stock-Based Compensation,* supersedes APB Opinion No. 25, *Accounting
      for Stock Issued to Employees,* and
      amends FAS-95, *Statement
      of Cash Flows.* FAS-123R
      requires companies to apply a fair-value-based measurement method in accounting
      for shared-based payment transactions with employees and to record compensation
      cost for all stock awards granted after the required effective date and for
      awards modified, repurchased or cancelled after that date. The scope of FAS-123R
      encompasses a wide range of share-based compensation arrangements, including
      share options, restricted share plans, performance-based awards, share
      appreciation rights, and employee share purchase plans. All employee stock
      option grants made since the beginning of fiscal 2005 have been expensed over
      the related stock option vesting period based on the fair value at the date
      the
      options are granted. Prior to fiscal 2005, the Company applied Accounting
      Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to
      Employees,” and related interpretations in accounting for stock
      options.


-
          10 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





Stock-Based
      Compensation (continued)





The
      Company issued a warrant to purchase 12,000,000 shares of the Company’s common
      stock to its Chairman and CEO, Steve Westlund, during the year ended December
      31, 2005, which had an estimated aggregate fair value of $192,000, and was
      immediately vested. The warrant is a five year warrant with an exercise price
      of
      $0.05 per share.








Comprehensive
      Income (Loss)





Statement
      of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
(SFAS 130) established standards for reporting and display of comprehensive
      income (loss) and its components in a full set of general-purpose financial
      statements. Comprehensive income consists of net income and unrealized gains
      (losses) on available-for-sale securities; foreign currency translation
      adjustments; changes in market values of future contracts that qualify as a
      hedge; and negative equity adjustments recognized in accordance with SFAS No.
      87. The Company, however, does not have any components of comprehensive income
      (loss) as defined by SFAS 130 and therefore, for the periods ended March 31,
      2006 and 2005, comprehensive loss is equivalent to the Company’s net loss.








Advertising
      Costs





The
      Company expenses advertising and marketing costs as they are incurred. The
      Company incurred no advertising and marketing costs for the periods ended March
      31, 2006 and 2005.








Segment
      and Geographic Information





The
      FASB
      issued SFAS No. 131 on “Disclosures about Segments of an Enterprise and Related
      Information” effective in 1998. SFAS 131 requires enterprises to report
      information about operating segments in annual financial statements and selected
      information about reportable segments in interim financial reports issued to
      shareholders, on the basis that is used internally for evaluating segment
      performance and deciding how to allocate resources to segments. It also
      established standards for related disclosures about products and services,
      geographic areas and major customers.





The
      Company operated in only one segment during the periods ended March 31, 2006
      and
      2005.








-
          11 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





Recent
      Accounting Pronouncements





In
      February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
      Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”.  SFAS No. 155, permits fair value remeasurement for any
      hybrid financial instrument that contains an embedded derivative that otherwise
      would require bifurcation, clarifies which interest-only strips and
      principal-only strips are not subject to the requirements of SFAS No. 133,
      establishes a requirement to evaluate interest in securitized financial assets
      to identify interests that are freestanding derivatives or that are hybrid
      financial instruments that contain an embedded derivative requiring bifurcation,
      clarifies that concentrations of credit risk in the form of subordination are
      not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition
      on the qualifying special-purpose entity from holding a derivative financial
      instrument that pertains to a beneficial interest other than another derivative
      financial instrument.  This statement is effective for all financial
      instruments acquired or issued after the beginning of the Company’s first fiscal
      year that begins after September 15, 2006.





In
      March
      2006 FASB issued SFAS 156 “Accounting for Servicing of Financial Assets” this
      Statement amends FASB Statement No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities,* with
      respect to the accounting for separately recognized servicing assets and
      servicing liabilities. This Statement is effective as of the beginning of the
      Company’s first fiscal year that begins after September 15, 2006. Management
      believes that this statement will not have a significant impact on the
      consolidated financial statements.





In
      June
      2005, the EITF reached consensus on Issue No. 05-6, “Determining the
      Amortization Period for Leasehold Improvements” (“EITF 05-6.”) EITF 05-6
      provides guidance on determining the amortization period for leasehold
      improvements acquired in a business combination or acquired subsequent to lease
      inception. The guidance in EITF 05-6 will be applied prospectively and is
      effective for periods beginning after June 29, 2005.  EITF 05-6 is not
      expected to have a material effect on its consolidated financial position or
      results of operations.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
This statement applies to all voluntary changes in accounting principle and
      requires retrospective application to prior periods’ financial statements of
      changes in accounting principle, unless this would be impracticable. This
      statement also makes a distinction between “retrospective application” of an
      accounting principle and the “restatement” of financial statements to reflect
      the correction of an error. This statement is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005.





In
      March
      2005, the SEC released Staff Accounting Bulletin No. 107, “Share-Based Payment”
(“SAB 107”), which provides interpretive guidance related to the interaction
      between SFAS 123(R) and certain SEC rules and regulations. It also provides
      the
      SEC staff’s views regarding valuation of share-based payment arrangements. In
      April 2005, the SEC amended the compliance dates for SFAS 123(R), to allow
      companies to implement the standard at the beginning of their next fiscal year,
      instead of the next reporting period beginning after June 15, 2005. Management
      has implemented the provisions of SFAS 123(R) effective January 1, 2005.


-
          12 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





Recent
      Accounting Pronouncements (continued)





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





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





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





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





The
      Company believes that the adoption of these standards will have no material
      impact on its financial statements.


-
          13 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**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
      $573,144 and $407,354 for the quarters ended March 31, 2006 and 2005,
      respectively. The Company also had a net working deficit of $4,449,637 for
      the
      quarter ended March 31, 2006. Additionally, the Company must raise additional
      capital to meet its working capital needs. If the Company is unable to raise
      sufficient capital to fund its operations for the Health Advocacy program,
      it
      might be required to discontinue its pharmacy operations. These factors raise
      substantial doubt about the Company’s ability to continue as a going concern. In
      view of the matters described above, recoverability of a major portion of the
      recorded asset amounts shown in the accompanying balance sheet is dependent
      upon
      the Company’s ability to generate sufficient sales volume to cover its operating
      expenses and to raise sufficient capital to meet its payment obligations. The
      financial statements do not include any adjustments relating to the
      recoverability and classification of recorded asset amounts, or amounts and
      classification of liabilities that might be necessary should the Company be
      unable to continue in existence.





Management
      has previously relied on equity financing sources and debt offerings to fund
      operations. The Company’s reliance on equity and debt financing will continue,
      and the Company will continue to seek to enter into strategic acquisitions.
      On
      March 29, 2005, Kaire issued a $125,000, 8% interest per annum, two year
      convertible note to the Longview Fund LP. On June 22, 2005, Kaire issued three
      two year convertible notes for an aggregate of a $350,000, 8% interest per
      annum, to the following: 1) $100,000 to the Longview Fund LP., $175,000 to
      the
      Longview Equity Fund LP, and 3) $75,000 to the Longview International Equity
      Fund, LP. On December 9, 2005 Kaire issued a $150,000, 12% interest per annum,
      two year convertible note to the Longview Fund LP.





On
      March
      13, 2006 Kaire issued a $100,000, 12% interest per annum, two year convertible
      note to the Longview Fund LP. On April 11, 2006 Kaire issued a $100,000, 12%
      interest per annum, two year convertible note to the Longview Fund LP.
      Additionally, management is increasing its efforts to generate revenue from
      third-party payers other than Medicare and Medi-Cal.











**3.**  **Accounts
      Receivable - Trade**





In
      the
      three months ended March 31, 2006 and 2005, approximately 43.6% and 71% of
      net
      revenues of continuing operations were derived under federal and state insurance
      reimbursement programs with 56.4% and 29% respectively coming from private
      party
      reimbursements and other third parties. For the three-month period ending March
      31, 2006, the breakout is as follows:





Medi-Cal
            43.6%Medi-Care
            0%Private
                Party
            30.1%Other
                third-parties
            26.3%








These
      revenues are based, in part, on cost reimbursement principles and are subject
      to
      audit and retroactive adjustment by the respective third-party fiscal
      intermediaries. In the opinion of management, retroactive adjustments, if any
      would not be material to the financial position, results of operations or cash
      flows of the Company.


-
          14 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**3.**  **Accounts
      Receivable - Trade (continued)**





The
      Company provides an allowance for doubtful accounts based upon its estimation
      of
      uncollectible accounts. The Company bases this estimate on historical collection
      experience and a review of the current status of trade accounts receivable.
      The
      Company determined that an allowance for doubtful accounts provision of $55,000
      was needed as of December 31, 2005 and no additional allowance for doubtful
      accounts for March 31, 2006, was necessary.











**4.**  **Convertible
      Notes Payable**





During
      the three months ended March 31, 2006, and during the years ended December
      31,
      2005, 2004 and 2003, the Company issued notes to third parties. As part of
      the
      several of the financing transactions, the Company also issued warrants to
      purchase shares of stock at various exercise prices.





Date
                of Note
            
            Amount
                of Notes
            
            Conversion
                Price(1)
            
            Term
                of NoteDecember
                12, 2003 (2)
            
            $
            676,576
            
            $
                0.04 or 70%
            
            3
                yearsMay
                3, 2004
            
            $
            650,000
            
            $
                0.09 or 85%
            
            3
                yearsMarch
                29, 2005
            
            $
            125,000
            
            $
                0.04 or 85%
            
            1
                yearJune
                23, 2005
            
            $
            350,000
            
            $
                0.03 or 80%
            
            2
                yearsDecember
                13, 2005 (2)
            
            $
            150,000
            
            70%
            
            2
                yearsMarch
                13, 2006 (2)
            
            $
            100,000
            
            70%
            
            2
                years





Date
                of Warrants Issued
            
            Number
                of Warrants
            
            Exercise
                Price
            
            Term
                of WarrantsMay
                3, 2004
            
            1,666,667
            
            $
            0.147
            
            5
                yearsMarch
                29, 2005
            
            694,444
            
            $
            0.042
            
            5
                yearsMarch
                29, 2005
            
            3,000,000
            
            $
            0.040
            
            5
                yearsJune
                23, 2005
            
            1,666,667
            
            $
            0.040
            
            5
                years





|(1) | the
              conversion price is the lower of the set price or the % of market closing
              price.
|--- | ----------------------------------------------------------------------------------------------------------------

|(2) | no
              warrants issued with this financing
              transaction.
|--- | -------------------------------------------------------------------------------




After
      a
      thorough analysis and review of the terms of the note and respective covenants,
      the Company has determined the appropriate method of accounting is including
      the
      entire debt as a current liability on the balance sheet, since the debt is
      immediately convertible at the option of the holder.





The
      Company filed the convertible note and warrant documents for the May 3, 2004
      funding in the Form SB-2, on June 21, 2004, which was declared effective on
      February 14, 2006. The Notes were entered into pursuant to the terms of a
      subscription agreement between the Company and the Holders, which was also
      included in the respective filings.





The
      notes
      contain provisions on interest accrual at the “prime rate” published in The Wall
      Street Journal from time to time, plus three percent (3%). The Interest Rate
      shall not be less than eight percent (8%). Interest shall be calculated on
      a 360
      day year. Interest on the Principal Amount shall be payable monthly, commencing
      120 days from the closing and on the first day of each consecutive calendar
      month thereafter (each, a “Repayment Date”) and on the Maturity Date.


-
          15 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**4.**  **Convertible
      Notes Payable (continued)**





Following
      the occurrence and during the continuance of an Event of Default (as discussed
      in the Note), the annual interest rate on the Note shall automatically be
      increased by two percent (2%) per month until such Event of Default is cured.





The
      Notes
      also provide for liquidated damages on the occurrence of several events. As
      of
      December 31, 2005, no liquidating damages have been incurred by the Company.





*Redemption
      Option -* The
      Company will have the option of prepaying the outstanding Principal Amount
      (“Optional Redemption”), in whole or in part, by paying to the Holder a sum of
      money equal to one hundred twenty percent (120%) of the Principal Amount to
      be
      redeemed, together with accrued but unpaid interest thereon.





*Debt
      features -* The
      Holder shall have the right, but not the obligation, to convert all or any
      portion of the then aggregate outstanding Principal Amount of this Note,
      together with interest and fees due hereon, into shares of Common Stock.





The
      proceeds from the financing transactions were allocated to the debt features
      and
      to the warrants based upon their fair values. After the latter allocations,
      the
      remaining value, if any, is allocated to the Note on the financial statements.





The
      debt
      discount is being accreted using the effective interest method over the term
      of
      the note. The value of the discount on the converted notes on the books is
      being
      accreted over the term of the note (three years). For the three months ended
      March 31, 2006 and 2005, the Company accreted $131,248 and $92,791,
      respectively, of debt discount related to the Notes.








Warrants
      Issued





The
      estimated fair values of the warrants at issuance were as follows:





Date
                of Warrants Issued
            
            Number
                of Warrants
            
            Value
                at Issuance
            
            Initial
                Volatility FactorMay
                3, 2004
            
            1,666,667
            
            $
            92,711
            
            188
            %March
                29, 2005
            
            694,444
            
            $
            21,387
            
            104
            %March
                29, 2005
            
            3,000,000
            
            $
            93,080
            
            104
            %June
                23, 2005
            
            1,666,667
            
            $
            49,340
            
            101
            %February
                28, 2006
            
            12,000,000
            
            $
            222,606
            
            122
            %





-16 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**4.**  **Convertible
      Notes Payable (continued)**





Warrants
      Issued (continued)





These
      amounts have been classified as a derivative instrument and recorded as a
      liability on the Company’s balance sheet in accordance with current
      authoritative guidance. The estimated fair value of the warrants was determined
      using the Black-Scholes option-pricing model with a closing price of on the
      date
      of issuance and the respective exercise price, a 5 year term, and the volatility
      factor relative to the date of issuance. The model uses several assumptions
      including: historical stock price volatility (utilizing a rolling 120 day
      period), risk-free interest rate (3.50%), remaining time till maturity, and
      the
      closing price of the Company’s common stock to determine estimated fair value of
      the derivative liability. In valuing the warrants at December 31, 2004, the
      Company used the closing price of $0.055, the respective exercise price, the
      remaining term on each warrant, and a volatility of 129%. In accordance with
      the
      provisions of SFAS No. 133, Accounting for Derivative Instruments, the Company
      is required to adjust the carrying value of the instrument to its fair value
      at
      each balance sheet date and recognize any change since the prior balance sheet
      date as a component of Other Income (Expense). The warrant derivative liability
      at December 31, 2004, had increased to a fair value of $68,059, due in part
      to a
      decrease in the market value of the Company’s common stock to $0.055 from $0.12
      at issuance of the May 3, 2004 amount, which resulted in Other Income of
      $124,652 on the Company’s books. For the year ended December 31, 2005, the
      warrant derivative liability had increased to a value of $126,095, due in part
      to a decrease in the market value of the Company’s common stock to $0.025 from
      $0.055 at December 31, 2004, which resulted in an “Other Income” item of
      $105,771 for the year ended December 31, 2005. The Company used a closing price
      of $0.025, the respective exercise prices, remaining time till maturity and
      a
      113% volatility factor.





The
      recorded value of such warrants can fluctuate significantly based on
      fluctuations in the market value of the underlying securities of the issuer
      of
      the warrants, as well as in the volatility of the stock price during the term
      used for observation and the term remaining for the warrants.








Debt
      Features





In
      accordance with Statement of Financial Accounting Standards No. 133, “Accounting
      for Derivative Instruments and Hedging Activities,” as amended (“SFAS 133”), the
      debt features provision (collectively, the features) contained in the terms
      governing the Notes are not clearly and closely related to the characteristics
      of the Notes. Accordingly, the features qualified as embedded derivative
      instruments at issuance and, because they do not qualify for any scope exception
      within SFAS 133, they were required by SFAS 133 to be accounted for separately
      from the debt instrument and recorded as derivative financial instruments.





Pursuant
      to the terms of the Notes, these notes are convertible at the option of the
      holder, at anytime on or prior to maturity. There is an additional interest
      rate
      adjustment feature, a liquidated damages clause, a cash premium option as well
      as the redemption option. The debt features represents an embedded derivative
      that is required to be accounted for apart from the underlying Notes. At
      issuance of the Notes, the debt features had an estimated initial fair value
      as
      follows, which was recorded as a discount to the Notes and a derivative
      liability on the consolidated balance sheet.


-17 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**4.**  **Convertible
      Notes Payable (continued)**





Debt
      Features (continued)





Date
                of Note
            
            Amount
                of Notes
            
            Debt
                Features Value at Issuance
            
            Initial
                Carrying ValueDecember
                12, 2003
            
            $
            676,576
            
            $
            338,642
            
            $
            337,934May
                3, 2004
            
            $
            650,000
            
            $
            516,920
            
            $
            133,080March
                29, 2005
            
            $
            125,000
            
            $
            33,850
            
            $
            91,150June
                23, 2005
            
            $
            350,000
            
            $
            73,964
            
            $
            276,036December
                13, 2005
            
            $
            150,000
            
            $
            76,150
            
            $
            73,850March
                13, 2006
            
            $
            100,000
            
            $
            50,767
            
            $
            49,233








In
      subsequent periods, if the price of the security changes, the embedded
      derivative financial instrument related to the debt features will be adjusted
      to
      the fair value with the corresponding charge or credit to Other Expense or
      Income. The estimated fair value of the debt features was determined using
      the
      probability weighted averaged expected cash flows / Lattice Model with the
      closing price on original date of issuance, a conversion price based on the
      terms of the respective contract, a period based on the terms of the notes,
      and
      a volatility factor on the date of issuance. The model uses several assumptions
      including: historical stock price volatility (utilizing a rolling 120 day
      period), risk-free interest rate (3.50%), remaining maturity, and the closing
      price of the Company’s common stock to determine estimated fair value of the
      derivative liability. In valuing the debt features at March 31, 2006 the Company
      used the closing price of $0.019 and the respective conversion price, a
      remaining term coinciding with each contract, and a volatility of 122%. For
      the
      Quarter ended March 31, 2006, the estimated value of the debt features increased
      to $1,680,700, thus the Company recorded Other Expense on the consolidated
      statement of operations for the change in fair value of the debt features
      related to these notes of $132,274 for the Quarter ended March 31, 2006.





Pursuant
      to the terms of the Notes, the Company has the option of prepaying the
      outstanding Principal Amount in whole or in part, by paying to the Holder a
      sum
      of money equal to one hundred twenty percent (120%) of the Principal Amount
      to
      be redeemed, together with accrued but unpaid interest thereon and any and
      all
      other sums due.





The
      recorded value of the debt features related to the Notes can fluctuate
      significantly based on fluctuations in the fair value of the Company’s common
      stock, as well as in the volatility of the stock price during the term used
      for
      observation and the term remaining for the warrants.





The
      significant fluctuations can create significant income and expense items on
      the
      financial statements of the Company.





Because
      the terms of the 2003 - 2006 convertible notes (“notes”) require such
      classification, the accounting rules required additional convertible notes
      and
      non-employee warrants to also be classified as liabilities, regardless of the
      terms of the new notes and / or warrants. This presumption has been made due
      to
      the Company no longer having the control to physical or net share settle
      subsequent convertible instruments because it is tainted by the terms of the
      notes. Were the notes to not have contained those terms or even if the
      transactions were not entered into, it could have altered the treatment of
      the
      other notes and the conversion features of the latter agreement may have
      resulted in a different accounting treatment from the liability classification.
      The 2005 notes and warrants, as well as any subsequent convertible notes or
      warrants, will be treated as derivative liabilities until all such provisions
      are settled.






18


**4.**  **Convertible
      Notes Payable (continued)**





Debt
      Features (continued)





For
      the
      year ended December 31, 2005, the Company recorded Other Expense of $510,143
      and
      Other Income of $105,771, related to the increase in value of the debt features
      and decrease in value of the warrants. A tabular reconciliation of this
      adjustment follows:





For
      the
      year ended December 31, 2005:





$
            105,771
            income,
                decrease in value of 2003, 2004 and 2005 warrant
                liability(510,143)
            expense,
                increase in value of 2003, 2004, and 2005 derivative
                liability$
            (404,372)
            other
                expense related to convertible debt








For
      the
      three months ended March 31, 2006:





$
            (5,026)
            income,
                decrease in value of 2003 and 2004 warrant liability102,135
            expense,
                increase in value of 2003 and 2004 derivative liability(36,709)
            income,
                decrease in value of 2005 warrant liability29,871
            expense,
                increase in value of 2005 derivative liability(53,266)
            income,
                decrease in value of 2006 warrant liability268
            expense,
                increase in value of 2006 derivative liability$
            37,273
            other
                expense related to convertible debt








For
      the
      year ended December 31, 2005, the Company recorded $455,249 of interest expense
      related to the accretion of debt related to the convertible
      financing.





For
      the
      year ended December 31, 2005:





$
            109,327
            of
                interest expense related to accretion of 2003 convertible
                debt215,991
            of
                interest expense related to accretion of 2004 convertible
                debt129,931
            of
                interest expense related to accretion of 2005 convertible
                debt$
            455,249
            of
                interest expense related to convertible
                debt








For
      the
      three months ended March 31, 2006, the Company recorded $131,248 of interest
      expense related to the accretion of debt related to the convertible
      financing.





For
      the
      three months ended March 31, 2006:





$
            26,169
            of
                interest expense related to accretion of 2003 convertible
                debt51,999
            of
                interest expense related to accretion of 2004 convertible
                debt50,906
            of
                interest expense related to accretion of 2005 convertible
                debt2,174
            of
                interest expense related to accretion of 2006 convertible
                debt$
            131,248
            of
                interest expense related to convertible
                debt





-19 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**4.**  **Convertible
      Notes Payable (continued)**





Debt
      Features (continued)





The
      balance of the carrying value of the convertible debt as of December 31, 2005,
      and March 31, 2006, is:





$
            617,775
            December
                31, 2004 value300,546
            original
                carrying value on 2005 convertible debt455,249
            accretion
                of convertible debt - 2005$
            1,373,570
            December
                31, 2005 carrying value of debt





$
            1,373,570
            December
                31, 2005 value49,234
            original
                carrying value on 2006 convertible debt131,248
            accretion
                of convertible debt - 2006$
            1,554,052
            March
                31, 2006 carrying value of debt








The
      balance of the carrying value of the derivative liability as of December 31,
      2005, and March 31, 2006, is:





$
            803,552
            December
                31, 2004 value of derivative liability183,965
            original
                values of 2005 derivative liability201,764
            increase
                in values of 2003 derivative liability184,050
            increase
                in values of 2004 derivative liability124,328
            increase
                in values of 2005 derivative liability$
            1,497,659
            December
                31, 2005 value of derivative
                liability





$
            1,497,659
            December
                31, 2005 value of derivative liability50,767
            original
                value of 2006 derivative liability53,916
            change
                in value of 2003 derivative liability48,219
            change
                in value of 2004 derivative liability29,871
            change
                in value of 2005 derivative liability268
            change
                in value of 2006 derivative liability$
            1,680,700
            March
                31, 2006 value of derivative
                liability








The
      balance of the carrying value of the warrant liability as of December 31, 2005,
      and March 31, 2006, is:





$
            68,059
            December
                31, 2004 value of warrant liability163,807
            original
                carrying values of 2005 warrant liability(50,275)
            income,
                decrease in value of 2004 warrant liability(55,496)
            income,
                decrease in value of 2005 warrant liability$
            126,095
            December
                31, 2005 value of warrant liability





$
            126,095
            December
                31, 2004 value of warrant liability222,606
            original
                carrying values of 2006 warrant liability(5,026)
            income,
                decrease in value of 2004 warrant liability(36,709)
            income,
                decrease in value of 2005 warrant liability(53,266)
            income,
                decrease in value of 2006 warrant liability$
            253,700
            March
                31, 2006 value of warrant liability





-
          20 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**5.**  **Common
      Stock Transactions**





Common
      stock transactions during the three months ending March 31, 2006





The
      Company issued 1,576,545 shares of common stock for conversion of $14,978 of
      note interest.








Common
      stock transactions during three months ending March 31, 2005





The
      Company issued 3,000,000 shares of common stock for consulting services and
      compensation valued at $150,000.











**6.**  **Related
      Party Transactions**





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





Source
      One Group





The
      Company’s chief financial officer served as the chief financial officer of
      Dalrada Financial Corporation (Dalrada) until May 5, 2006, when he resigned
      from
      that position. Dalrada, through its subsidiary Source One Group (“SOG”),
      operates a professional employment organization. SOG provides services for
      the
      Company as its professional employment organization. The Company entered into
      an
      Employment Services Agreement with SOG pursuant to which SOG agreed to render
      professional employment and related services to the Company for a fee. The
      Company paid fees to SOG totaling $0 and $3,347 for the three months ended
      March
      31, 2006 and 2005, respectively. The fees charged by SOG to the Company are
      at
      the prevailing rate that SOG charges others.











**7.**  **Property
      and Equipment**





Property
      and equipment at March 31, 2006, and December 31, 2005, consisted of the
      following:





March
                31, 2006
            
            December
                31, 2005Furniture
                and fixtures
            $
            85,000
            
            $
            85,000Vehicles
            
            14,712
            
            
            14,712Computers
                and equipment
            
            22,094
            
            
            22,094121,806
            
            
            121,806Less
                accumulated depreciation and amortization
            
            (86,213)
            
            
            (80,260)Total
            $
            35,593
            
            $
            41,546





Depreciation
      and amortization expense for the quarters ended March 31, 2006 and 2005 was
      $5,953 and $7,238, respectively.


-21 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**8.**  **Accounts
      Payable and Accrued Expenses**





Accounts
      payable and accrued expenses at December 31, 2005 and 2004 consisted of the
      following:




March
                    31, 2006
                December
                    31, 2005Accounts
                    payable
                
                336,437
                
                279,791Accrued
                    professional and related fees
                
                164,272
                
                150,072Accrued
                    compensation and related liabilities
                
                55,026
                
                41,138Accrued
                    settlements
                
                38,567
                
                45,092Sales
                    tax payable
                
                35
                
                107Other
                    accrued expenses
                
                9,559
                
                10,426Total
                
                603,896
                
                526,626




**9.**  **Commitments
      and Contingencies**





Litigation





*Department
      of Health Services - Medi-Cal Action against Classic Care Pharmacy*





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





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





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





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


-22 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





Litigation
      (continued)





*Department
      of Health Services - Medi-Cal Action against Classic Care Pharmacy
      (continued)*





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





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








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





On
      April
      2, 2003, H.D. Smith filed a complaint against Classic Care, Inc., Kaire
      Holdings, Inc., Sarit Rubenstein, Steven Oscherowitz and Larisa Vernik for
      various causes of action relating amounts owed for certain drugs that were
      delivered to Classic Care. H.D. Barnes was seeking $430,205 plus interest.
      On
      December 30, 2004 a settlement was reached where Kaire is obligated to pay
      the
      plaintiff $50,000. Kaire’s payment obligation will mature upon court approval of
      the settlement, with $10,000 due immediately (paid July 8, 2005) and the balance
      paid based on 12 monthly installments of $3,077 (which includes interest of
      7.50%) to commence shortly thereafter. The balance owed as of December 31,
      2005
      was $24,615. Kaire is currently in breach under this settlement agreement.








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





On
      January 20, 2005, McKesson Medical-Surgical, Inc. (“Plaintiff”) filed a
      complaint against Effective Health, Inc., a subsidiary of Kaire, for failure
      to
      pay the principal sum of $17,466 for goods and/or services. A settlement was
      reached in October 2005 calling for Effective Health to pay $2,000 upon
      execution and $1,300 a month until the balance is paid off. The balance owed
      as
      of December 31, 2005 was $10,401. The balance owed as of March 31, 2006 was
      $6,250.





Except
      as
      otherwise specifically indicated above, we believe that we do not have any
      material liability for any lawsuits, settlements, judgments, or fees of defense
      counsel which have not been paid or accrued as of March 31, 2006.


-23 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





Litigation
      (continued)





*Medical
      License*





The
      Department of Health Services (“DHS”) denied Sespe’s application (including a
      subsequent appeal) for a MediCal provider number and on February 22, 2006.
      Sespe
      is currently billing MediCal using the prior owner’s provider number pursuant
      through a power of attorney.  Sespe expects this provider number may be
      cancelled at any time by DHS.  The Company is in consulting with its legal
      counsel regarding its options, but it is not clear under the statutes whether
      Sespe can continue the practice of using the old provider number after being
      rejected for a new number, or if Sespe can use such number until the DHS
      rejects  filings using the old provider number. The financial condition and
      operations of the Company in future periods could be adversely affected if
      Sespe
      is not able to continue to process Medical patients.








Employment
      Agreements





*Chief
      Executive Officer Compensation*





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





Mr.
      Westlund also receives a commission of 3% of the merger price for any mergers
      or
      acquisitions completed by the Company during the term of the agreement.








Consulting
      Agreements





The
      Company has various consulting agreements that provide for issuance of the
      Company’s common stock and/or stock options/stock purchase warrants in exchange
      for services rendered by the consultants. These agreements relate primarily
      to
      raising of capital, accounting services, legal services, and professional
      services rendered in connection with the Company’s acquisition efforts. The
      Company has no amounts due under these agreements as of March 31, 2006 and
      2005.











**10.**  **Stock
      Options and Warrants**





In
      January 2005, the Company adopted the provisions of SFAS Nos. 123R using the
      prospective method.





Options
      and warrants are granted at prices that are equal to the current fair value
      of
      the Company’s common stock at the date of grant. The Company records
      compensation expense on options granted the current fair market value. The
      vesting period is usually related to the length of employment or consulting
      contract period. In the quarters ending March 31, 2006 and 2005, the Company
      granted warrants convertible into the Company’s common stock pursuant to the
      issuance of convertible debentures (see Note 4).


-24 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





The
      fair
      value of employee warrants was estimated at the date of grant using the
      Black-Scholes option-pricing model with the following weighted-average
      assumptions for the quarters ended March 31, 2005 and 2005; dividend yield
      of
      0%; expected volatility of 150%; risk-free interest rate of 4.0%; and expected
      life of 5 years.





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options, which have no vesting restrictions and are fully
      transferable. In addition, option valuation models require the input of highly
      subjective assumptions including the expected stock price volatility. Because
      the Company’s employee stock options have characteristics significantly
      different from those of traded options, and because changes in the subjective
      input assumptions can materially affect the fair value estimate the existing
      models, in management’s opinion, do not necessarily provide a reliable single
      measure of the fair value of its stock options. The weighted-average fair value
      of warrants granted to employees during the year ended December 31, 2005 was
      $0.16.





The
      following table summarizes information with respect to stock warrants
      outstanding and exercisable at March 31, 2006:





Warrants
                Outstanding
            
            Warrants
                ExercisableRange
                of Exercise
              Prices
            
            Number
              Outstanding
                as of March 31, 2006
            
            Weighted
              Average
              Remaining
                Contractual Life
            
            Weighted
              Average
              Exercise
              Price
            
            Number
                Exercisable as of March 31, 2006
            
            Weighted
              Average
              Exercise
              Price$0.03
                - $0.17
            
            37,972,221
            
            4.22
            
            
            $
                0.06
            
            37,972,221
            
            
            $0.0637,972,221
            
            4.22
            
            
            $
                0.06
            
            37,972,221
            
            
            $0.06








The
      following table summarizes information with respect to stock warrants
      outstanding and exercisable at December 31, 2005:





Warrants
                Outstanding
            
            Warrants
                ExercisableRange
                of Exercise
              Prices
            
            Number
              Outstanding
                as of December 31, 2005
            
            Weighted
              Average
              Remaining
                Contractual Life
            
            Weighted
              Average
              Exercise
              Price
            
            Number
                Exercisable as of December 31, 2005
            
            Weighted
              Average
              Exercise
              Price$0.03
                - $0.17
            
            25,972,221
            
            4.3
            
            $
            0.06
            
            25,972,221
            
            $
            0.0625,972,221
            
            4.3
            
            $
            0.06
            
            25,972,221
            
            $
            0.06





-25 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





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





Warrants
              And
              Stock
                Options
              Outstanding
            
            Weighted
              Average
              Exercise
              PriceOutstanding
                December 31, 2004
            4,444,444
            
            $
            0.17Granted
                March 29, 2005
            3,694,444
            
            $
            0.04Granted
                June 22, 2005
            5,833,333
            
            $
            0.03Granted
                November 1, 2005
            12,000,000
            
            $
            0.05Exercised
            -
            
            $
            -Expired/Cancelled
            -
            
            $
            -Outstanding
                December 31, 2005
            25,972,221
            
            $
            0.06Granted
                February 28, 2006
            12,000,000
            
            $
            0.05Exercised
            -
            
            
            -Expired
            -
            
            
            -Outstanding
                March 31, 2006
            37,972,221
            
            $
            0.06








The
      Company has 37,972,221 warrants outstanding as of March 31, 2006, and 25,972,221
      warrants outstanding as of December 31, 2005. The weighted exercise price of
      the
      outstanding warrants as of March 31, 2006, and December 31, 2005, is $0.06.
      The
      outstanding warrants have a clause that causes the exercise price can be
      adjusted down by the Company upon certain Company actions. The warrants expire
      5
      years from the original date of grant. The Company has not repriced any warrants
      as of March 31, 2006.











**11.**  **Restatement
      of Financial Statements**





The
      Company has restated it’s previously issued 2004 consolidated financial
      statements for matters related to the following previously reported items:
      properly reflect the accounting for convertible notes, the related debt
      derivative and warrants pursuant to EITF Nos. 00-19, 05-02, 05-04 and SFAS
      No.
      133; and the related income tax effects. The accompanying financial statements
      for 2004 have been restated to reflect the corrections. Also, retained earnings
      at January 1, 2004 was reduced by $23,826 as a result of adjustments to the
      carrying value of convertible debentures, warrant liability and other derivative
      liabilities, which previously were unrecorded liabilities in 2003.


-
          26 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**11.**  **Restatement
      of Financial Statements (continued)**





Three
      months ended March 31, 2005





The
      following is a summary of the restatements for the three months ended March
      31,
      2005 (unaudited):





Increase
                in interest expense
            $
            48,550Amortization
                of debt discount
            
            (92,721)Net
                changes in fair value of warrant liability
            
            41,029Net
                change in fair value of debt derivative liability
            
            (100,624)$
            (103,766)








The
      following is a summary of the restatements for the three months ended March
      31,
      2005:





Income
                tax effect of restatement
            $
            -Total
                increase in net loss
            $
            103,766





The
      effect on the Company’s previously issued March 31, 2005, financial statements
      are summarized as follows:





Previously
              reported
            
            Change
            
            RestatedBalance
                Sheet
            (unaudited)
            
            
            
            
            (unaudited)Convertible
                notes - current portion
            $
            753,970
            
            $
            (43,474)
            
            $
            710,496Derivative
                liability
            $
            -
            
            $
            938,026
            
            $
            938,026Warrant
                liability
            $
            -
            
            $
            141,497
            
            $
            141,497Total
                Current Liabilities
            $
            1,646,477
            
            $
            1,036,049
            
            $
            2,682,526Convertible
                notes payable and debentures - non-current
            $
            313,267
            
            $
            (313,267)
            
            $
            -Total
                long term liabilities
            $
            313,267
            
            $
            (313,267)
            
            $
            -Total
                Liabilities
            $
            1,959,744
            
            $
            722,782
            
            $
            2,682,526Additional
                paid in capital
            $
            40,547,502
            
            $
            (761,146)
            
            $
            39,786,356Accumulated
                deficit
            $
            (42,168,683)
            
            $
            38,364
            
            $
            (42,130,319)Total
                Stockholders’ Equity
            $
            (1,587,303)
            
            $
            (722,782)
            
            $
            (2,310,085)Statement
                of OperationsInterest
                expense
            $
            (107,756)
            
            $
            57,825
            
            $
            (49,931)Gain/(loss)
                from change in warrant liability
            $
            -
            
            $
            41,029
            
            $
            41,029Gain/(loss)
                from change in derivative liability
            $
            -
            
            $
            (100,624)
            
            $
            (100,624)Accretion
                of convertible debt
            $
            -
            
            $
            (92,721)
            
            $
            (92,721)Debt
                issuance costs
            $
            -
            
            $
            (9,275)
            
            $
            (9,275)Total
                Other Income (Expenses)
            $
            (107,756)
            
            $
            (103,766)
            
            $
            (211,522)Loss
                from continuing operations before income taxes
            $
            (303,588)
            
            $
            (103,766)
            
            $
            (407,354)Loss
                from continuing operations
            $
            (303,588)
            
            $
            (103,766)
            
            $
            (407,354)Net
                Loss
            $
            (303,588)
            
            $
            (103,766)
            
            $
            (407,354)








The
      loss
      after discontinued operations for the three months ending March 31, 2005 was
      originally $303,588, while the three months ending March 31, 2005 restated
      loss
      after discontinued operations is reported as $407,354, an increase in loss
      of
      $103,766. This increase in loss, related to the convertible debt and warrants
      issued through March 31, 2005 consists of the following: 1) decrease in interest
      expense of $57,825; 2) the accretion of debt amounting to $92,721; 3) interest
      expense relating to the debt derivatives of $100,624; 4) debt issuance costs
      of
      $9,275; offset by 5) warrant interest income of $41,029.


-
          27 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


**11.**  **Restatement
      of Financial Statements (continued)**





Three
      months ended March 31, 2005 (continued)





On
      the
      March 31, 2005 balance sheet, the restatement resulted in an increase in
      liabilities of $722,782 consisting of the following; 1) an increase to the
      derivative liability of $938,026; 2) an increase to the warrant liability of
      $141,497; and 3) an increase in debt discount of $356,741. There was also a
      decrease in additional paid in capital of $761,146.





The
      basic
      and diluted loss per share remained the same.











**12.**  **Loss
      per Share**





Earnings
      per share have been calculated using the weighted average number of shares
      outstanding during each period. As of March 31, 2006 and 2005, potentially
      dilutive securities consist of convertible debentures convertible into
      154,253,835 and 48,385,866 common shares and warrants convertible into
      37,972,221 and 8,138,888 shares respectively. Earnings per share-dilutive does
      not include the effect of potentially dilutive securities for the periods ended
      March 31, 2006 and 2005. The loss from operations and the net loss for the
      three-month periods ended March 31, 2006 and 2005, make these securities
      anti-dilutive.











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





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





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


-28 -
 
 **Kaire
          Holdings Incorporated and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **March
          31, 2006**


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





The
      net
      assets (liabilities) of the discontinued operations have been recorded at their
      estimated net realizable value under the caption “Net assets (liabilities) of
      discontinued operations - Classic Care” in the accompanying Balance Sheets at
      March 31, 2006, and December 31, 2005, and consist of the following:





March
                31, 2006
            
            December
                31, 2005Non-trade
                receivable
            
            -
            
            
            -Total
                Assets
            $
            -
            
            $
            -Accounts
                payable
            
            (131,845)
            
            
            (131,845)Accrued
                liabilities
            
            (13,766)
            
            
            (13,766)Reserve
                for litigation
            
            -
            
            
            -Total
                liabilities
            
            (145,611)
            
            
            (145,611)Net
                assets (liabilities) of discontinued operations
            $
            (145,611)
            
            $
            (145,611)








There
      was
      no income or loss related to the operations of Classic Care during the three
      months ended March 31, 2006 and 2005.








**14.**  **Subsequent
      Events**





On
      December 13, 2005, Kaire entered into a subscription agreement with the Longview
      Fund, LP to issue $350,000 in convertible debentures, 12% annual interest rate
      in three traunches. A convertible debenture for $150,000 was issued on December
      13, 2005 and its underlying shares are being registered through this document.
      The second traunch of $100,000 was issued on March 13, 2006 and the third
      traunch of $100,000 was issued on April 14, 2006. The convertible debentures
      can
      be converted into shares of common stock with the conversion price being 70%
      of
      the average of the lowest five closing bid prices of the common stock during
      the
      20 trading days preceding the conversion date.





In
      April
      2006, the Company issued two warrants to purchase 27,500,000 shares each for
      an
      aggregate of 55,000,000 shares, at an exercise price of $.05 per share to two
      business marketing consultants. The warrants are not cashless and have piggyback
      registration rights.





In
      April
      2006, the Company filed an S-8 registration statement to pay certain consultants
      for services rendered. The Company issued 4,986,364 shares of common stock
      having a total value of $124,659.





In
      April
      2006, the Company issued 600,000 shares of common stock valued at $16,800 for
      consulting services.








-29 -
 
 **Kaire
            Holdings Incorporated and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **March
            31, 2006**


**** Item
      2.  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.





Plan
      of Operation





General





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





Short
      Term Goals





Our
      main
      short term goal is to increase sales revenue and achieve profitability on an
      operational cash flow basis.  We hope
      to achieve this goal around the third or fourth quarter in 2006. To achieve
      this
      goal, we are focusing on the following:





·  Increase
      the number of retail and long term care private pay and third party pay
      patients, as opposed to Medi-Cal patients, which we can no longer service,
      by
      focusing more of our resources on targeted sales and marketing programs.


·  Develop
      revenue channels with higher gross profit margins such as durable medical
      equipment such as wheel chairs, beds and walkers, and equipment
      rentals.


·  Enhancing
      operational efficiencies during this expansion mode such as by installing
      procedures for routine functions and reassign employee functions that fit their
      individual strengths.


·  Relocate
      the pharmacy to an area that can more efficiently service Los Angeles hospital
      patients as well as lower the cost of doing business.





Though
      we
      have customers in place that could steadily increase our revenue over the next
      six to twelve months, we have not generated enough upfront new business to
      date
      to make up the loss of revenue incurred from the loss of two large clients
      during the first and second quarters of 2005 and the inability to service
      Medi-Cal patients as of May 1, 2006. Therefore we are experiencing a longer
      than
      anticipated ramp up of sales which has delayed the projection for increased
      sales and a favorable cash flow position for sometime into the third or fourth
      quarter of 2006.





Long
      Term Goals





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





Concerning
      working capital, historically our revenues have been insufficient to cover
      the
      cost of running Kaire Holdings operations plus its non-operational costs. For
      the three month period ending March 31, 2006 our operations have not been
      generating a positive cash flow. Additional funds are required to cover
      non-operational costs which include the costs to maintain a public entity.
      In
      order to cover such costs, Kaire Holdings has had to rely in part on private
      placements of common stock securities, loans from private investors and in
      some
      instances the exercise of common stock warrants to meet the non-operational
      needs. With revenue growth being delayed till sometime in the third or fourth
      quarter of 2006, we believe that over the next twelve months there will be
      a
      need for additional working capital to meet our non-operational needs. Currently
      Kaire maintains no excess cash, i.e. it is used as soon as it is received.
      We
      estimate that an additional $200,000 in funds will need to be raised in order
      to
      carry us through the next twelve months.






30





This
      evaluation is based on the need to cover the costs of the additional burdens
      put
      on the company due to reporting regulation changes plus the desire to relocate
      our pharmacy to an area that allows for better servicing of clients. In the
      event that we are unable to obtain additional funding over the next several
      months, we will need to reduce non operational programs to a point where cash
      outflow will not exceed cash inflow and curtail any growth in operations.





Historically,
      we have been successful in our efforts to secure working capital mainly from
      private placements of common stock securities and loans from private investors.
      However, there can be no assurances that private or other capital will continue
      to be available to meet our cash needs, or that a sufficient amount of our
      common stock or other securities can or will be sold or that any common stock
      purchase options/warrants will be exercised to fund the non operational needs
      of
      the Company.





On
      December 13, 2005, Kaire entered into a subscription agreement to issue $350,000
      in convertible debentures, 12% annual interest rate in three traunches. A
      convertible debenture for $150,000 was issued on December 13, 2005 and its
      underlying shares are being registered through this document. A second
      convertible debenture of $100,000 was issued on March 13, 2006 and the third
      traunch of $100,000 was funded on April 11, 2006. As mentioned above, Kaire
      will
      most likely need another $200,000 to carry us through the next twelve months.





Results
      of Operations





Three
      Months Ended March 31, 2006 Compared to March 31, 2005





Revenues




For
      the
      three months ended March 31, 2006 and 2005, revenues were approximately $286,086
      and $430,764 respectively, for a decrease of $144,678 or 33.6%. The decrease
      in
      revenue is a result of the discontinued servicing of two related 100 bed skilled
      nursing facilities, one of which was very costly to service due to its distant
      location and service requirements. On October 17, 2005, Medi-Cal denied our
      Pharmacy’s Medi-Cal provider application which was turned off around May 1, 2006
      which means we are no longer able to service our Medi-Cal clients. We have
      been
      focusing on signing up non Medi-Cal clients and as a result we have reduced
      the
      Medi-Cal portion of sales to 43.6% of the total first quarter sales. However
      ramping up non-Medi-Cal sales has been slow and it is anticipated that it will
      not be until the end of the 3 rd or
      4 th quarter
      that we will have completely replaced our Medi-Cal revenue.





We
      consider that the decision to discontinue servicing the two related skilled
      nursing facilities was a mutual decision. Both the facilities and our company
      had discussed ending our relationship on several occasions. However, the
      facility management did send the actual letter informing us that they wished
      to
      terminate the pharmacy services agreement. Our discussions to terminate services
      were based on a number of factors, the main factor being the number of
      deliveries required per day which made the distance to the facilities also
      a
      factor. The distance to the first facility was one hundred seventy five miles
      from our pharmacy and the second facility was sixty five miles from our
      pharmacy. Initially, we believed that the issue of distance would not pose
      a
      problem because the services agreements called for one delivery per day to
      the
      most distant facility and two daily deliveries to the second facility. However,
      the need for additional deliveries per day arose immediately due to the large
      number of emergency issues at the facilities which included the facilities
      misplacing patient medications, or doctors making multiple changes in patient’s
      medications in a single day. Overall, our company was losing money servicing
      these facilities due to these multiple deliveries of medications as well as
      the
      excessive overtime we had to pay our delivery staff to accommodate the
      facilities.






31





The
      main
      vehicle that has been offsetting the lost sales has been through the three
      year
      agreements we signed to provide full pharmacy services to the Senior and
      Medi-Cal patient enrollees for two Independent Physician Associations (IPA’s)
      with member facilities in San Bernardino, Riverside and Los Angeles counties.
      These IPAs service up to 100,000 patient enrollees of which Kaire could
      eventually access up to 6% (or 6,000 patients).





The
      pharmacy services agreements with the two Independent Physicians Associations
      (IPA’S) would be minimally affected by the denial of the Medi-Cal provider
      number. The vast majority of the patients served by the IPA’S are covered by
      commercial insurance providers such as Blue Cross, Health Net, Molina, Pacific
      Care, Medicare, Blue Shield and others. Our company is able to provide services
      to these patients and receive payment from the insurance providers as well
      as
      directly from the IPAs.





The
      phasing in of sales from the IPAs will take several years. The IPA patients
      are
      clustered around member hospitals and clinics that are located from East Los
      Angeles County and extend past San Bernardino County. Servicing each cluster
      would require a separate pharmacy to be located at each cluster. At present
      we
      have only one pharmacy. Once we have successfully phased a cluster of patients
      geographically close to our pharmacy we can proceed to determine which next
      cluster of patients to service and set up a new pharmacy to provide such
      service, and keep repeating this scenario. It has taken us several months to
      understand how the IPAs work, and we are still three to six months away from
      completing our phase in with this first cluster of patients. Based on our
      experience in setting up service for the first cluster of patients, expanding
      into each new cluster will require about six to nine months each. Thus expanding
      one cluster at a time will be a multi year process.





Another
      factor that we have to phase in relates to the nature of services the patients
      need and the ease of phasing those patients into our pharmacy. Patients are
      grouped according to the type of services needed. These groups include the
      following: a) patients discharged from member hospitals, b) patients treated
      at
      member clinics, c) patients with refillable prescriptions, and d) long term
      care
      home therapy patients.





The
      easiest group of patients to phase in are the patients discharged from member
      hospitals or treated in one of the member clinics for the following reasons:
      1)
      it is the responsibility of the IPA’s to pay us for services provided to these
      patients, thus we invoice the IPA for services rendered, and 2) our company
      is
      able to select and serve a group of patients that are geographically clustered
      close to our pharmacy. Once established with these groups we can phase in
      patients with refillable prescriptions and long term care home therapy patients.
      This phase in method helps facilitate the overall plan of expanding our business
      one cluster at a time.





As
      mentioned above, Kaire will gain access to just a small portion of the 100,000
      IPA patients (approximately 6%) which will be phased in over several years.
      The
      first cluster of patients that we will be servicing will number in the range
      of
      400 to 600 patients. The next targeted cluster of patients should range from
      1,200 to 2,000 patients.








32





Cost
      of
      Goods Sold





Cost
      of
      goods sold for the three month period ending March 31, 2006 and March 31, 2005
      was $213,364 and $240,556 respectively, for a decrease of $27,192 (11.3%) over
      the same period in 2005. This decrease is a direct result of the fall in sales.





Gross
      Profit





Gross
      profit for products and services was $72,722 for the three months ended March
      31, 2006, a decrease of $117,486 (61.8%) for the same three-month period in
      2005. The gross profit margin for the three months ended March 31, 2006 and
      March 31, 2005 was 25.4.0% and 44.2% respectively. The decrease in gross profit
      was due to a shift in product mix from prior year. The prior year’s unusually
      high quarterly margin was a one time shift
      in
      drugs required by the patients from brand to generic name drugs.





Operating
      Expenses





Operating
      expenses for the three month periods ended March 31, 2006 and March 31, 2005
      were $424,753 and $386,040 respectively for an increase of $38,713 (10.0%).
      The
      $38,713 increase in expenses is mainly attributable to increases in 1) $222,606
      (57.6%) increase in consulting expense as a result of the valuation in a warrant
      issued to a consultant pursuant to EITF 00-16-9, 2) $8,999 (2.3%) increase
      in
      consulting and outside services, 3) $2,279 (0.6%) increase in computer repairs,
      4) $1,579 (0.4%) increase in rent, and 5) $2,781 (0.7%) increase in selling
      expenses, offset by decreases in 1) accounting fees of $33,633 (8.7%), 2) legal
      fees of $92,309 (23.9%), 3) auto related expenses of $4,215 (1.1%), 4) phone
      expenses of $3,358 (0.9%), 5) salaries and related expenses of $64,682 (16.7%)
      as a result of reductions in head count, and 6) other items for $1,334 (0.3%).





Interest
      expense for the three month period ended March 31, 2006 and March 31, 2005
      were
      $39,339 and $49,931 respectively which was a decrease of $10,952 (21.2%). In
      the
      three months ended March 31, 2005, the Company paid interest on a short-term
      note payable. There was no equivalent note in the current year. Gain from the
      change in warrant liability for the three month period ended March 31, 2006
      was
      $95,001 compared to $41,029 for the prior period, for a gain of 53,972 (131.5%).
      This gain was a result of a decrease in the valuation of the warrant liability.
      Derivative liability expense for the three month period ended March 31, 2006
      was
      $132,274 compared to $100,624 for the same period in 2005, for an increase
      in
      expense of $31,650 (31.5%). This increase was a result of an increase in the
      valuation of the derivative liability. Accretion of convertible debt discount
      expense for the three month periods ended March 31, 2006 and March 31, 2005
      were
      $131,248 and $92,721 respectively, which was an increase of $38,527 (41.6%),
      which is a result of the issuance of additional debt during the three month
      period ending March 31, 2006. Debt issuance costs for the three month period
      ended March 31, 2006 and March 31, 2005 were $13,253 and $9,275 respectively,
      which was an increase of $3,978 (42.9%) which is a result of the issuance of
      additional debt during the three month period ending March 31, 2006.








Federal
      Income Tax





No
      provision was made for Federal income tax since the Company has incurred
      significant net operating losses from inception. Through the three month period
      ending March 31, 2006, the Company incurred a net operating loss for tax
      purposes of approximately $573,144. The net operating loss carry forward may
      be
      used to reduce taxable income through the year 2014. The Company's tax returns
      have not been audited by the Internal Revenue Service. The carry forward amounts
      may therefore be subject to audit and adjustment. As a result of the Tax Reform
      Act, the availability of net operating loss carry forwards can be deferred,
      reduced or eliminated under certain circumstances. Net operating losses in
      the
      State of California were not available for use during 1992 and the carry forward
      period has generally been reduced from fifteen years to five years.







33


Liquidity
      and Capital Resources





Cash
      flow
      used in operations for the three month period ending March 31, 2006 amounted
      to
      ($122,110), which mainly consisted of the net loss for the three months ending
      March 31, 2006 of ($573,144) plus the gain from change in warrant liability
      of
      ($95,001) offset by the following: 1) depreciation and amortization of $5,953,
      2) accretion of convertible debt discount of $131,248, 3) loss from change
      in
      derivative liability of $132,274, 4) common stock issue for payment of interest
      of $14,977, 5) warrants issued for consulting expense of $222,606, and 5)
      amortization of deferred financing costs of $13,253. In addition there was
      1) an
      increase in trade receivable of ($65,339) 2) an increase in inventory of
      ($10,568), 3) a decrease in sales tax payable of ($72), 4) and increase in
      accrued interest in convertible notes of $24,361 and 5) an increase in accounts
      payable and accrued expenses of $77,342.




Net
      cash
      used in investing activities for the three month period ending March 31, 2006
      was $nil.





Net
      cash
      generated from financing activities for the three month period ending March
      31,
      2006 was $122,110 which consisted primarily of proceeds from notes payable
      -
      shareholder of $86,371, proceeds from convertible notes payable of $100,000,
      increase in bank overdraft of $498, offset by payments to notes payable
      -shareholders of ($61,746), and deferred financing costs of ($3,013).





On
      March
      31, 2006 the Company had total assets of $306,136 compared to $246,422 on
      December 31, 2005, an increase of $59,714 or 24.2%. The Company had a total
      stockholder's deficit of $4,414,044 on March 31, 2006, compared to a
      stockholders deficit of $3,855,876 on December 31, 2005, an increase of $558,168
      or 14.5%. As of March 31, 2006 the Company's working capital position decreased
      by $552,215 (14.2%) from a working capital deficit of $3,897,422 at December
      31,
      2005 to a working capital deficit of $4,449,637 at March 31, 2006. This result
      was attributed primarily to increases in 1) convertible notes - current portion
      of $180,482 (12.2%), 2) increase in warrant liability of $127,605 (101.2%),
      3)
      increase in derivative liability of $183,041 (12.2%), 4) increase in accrued
      interest on the current portion of the accrued notes of $24,361 (7.6%), 5)
      increase in advances from shareholder of $24,625 (25.1%), 6) increase in
      accounts payable of $77,270 (914.7%), 7) an increase in the bank overdraft
      of
      $498 (10.8%), and 8) a decrease in deferred financing costs of $10,240 (24.8%),
      offset by increases in 1) accounts receivable trade of $65,339 (68.2%) and
      2)
      inventory of $10,568 (15.6%)





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





Estimated
      future cash requirements





Our
      estimate of net cash requirements for overhead for the next twelve months
      subsequent to March 31, 2006 is approximately $80,000 a month for a twelve-month
      total of $960,000. The estimate of net cash inflow from operations for that
      time
      period is estimated to be no less than $720,000. This results in a total
      shortfall of approximately $240,000 or some $20,000 a month. In the past, this
      shortfall has been offset by deferring certain fees and by management deferring
      their fees and/or salary. The deferral of these charges will most likely
      continue until sales ramp up to a sufficient level.







34


We
      have
      generally financed our operational and non-operational costs through the sale
      of
      its common stock. With non-operational costs certain to increase in the near
      term, it is anticipated that we will need an additional infusion of funds of
      approximately $300,000 from outside sources. If we are unable to gain access
      to
      such funding, we will be forced to curtail operations or possibly go private
      to
      defray expenses due to the increasing burden of being a public company.





Subsequent
      Events :





On
      April
      14, 2006 the third traunch of the following funding was received. On December
      13, 2005, Kaire entered into a subscription agreement with the Longview Fund,
      LP
      to issue $350,000 in convertible debentures, 12% annual interest rate in three
      traunches. A convertible debenture for $150,000 was issued on December 13,
      2005
      and its underlying shares are being registered through this document. The second
      traunch of $100,000 was issued on March 13, 2006 and the third traunch of
      $100,000 was issued on April 14, 2006. The convertible debentures can be
      converted into shares of common stock with the conversion price being 70% of
      the
      average of the lowest five closing bid prices of the common stock during the
      20
      trading days preceding the conversion date.





In
      April
      2006, the Company issued two warrants to purchase 27,500,000 shares each for
      an
      aggregate of 55,000,000 shares, at an exercise price of $.05 per share to two
      business marketing consultants. The warrants are not cashless and have piggyback
      registration rights.





In
      April
      2006, the Company filed an S-8 registration statement to pay certain consultants
      for services rendered. The Company issued a total of 4,986,364 shares of common
      stock having a total value of $124,659.





In
      April
      2006, the Company issued 600,000 shares of common stock valued at $16,800 for
      consulting services.








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
      $573,144 and $407,354 for the quarters ended March 31, 2006 and 2005,
      respectively. The Company also had a net working deficit of $4,449,637 for
      the
      quarter ended March 31, 2006. Additionally, the Company must raise additional
      capital to meet its working capital needs. If the Company is unable to raise
      sufficient capital to fund its operations for the Health Advocacy program,
      it
      might be required to discontinue its pharmacy operations. These factors raise
      substantial doubt about the Company’s ability to continue as a going concern. In
      view of the matters described above, recoverability of a major portion of the
      recorded asset amounts shown in the accompanying balance sheet is dependent
      upon
      the Company’s ability to generate sufficient sales volume to cover its operating
      expenses and to raise sufficient capital to meet its payment obligations. The
      financial statements do not include any adjustments relating to the
      recoverability and classification of recorded asset amounts, or amounts and
      classification of liabilities that might be necessary should the Company be
      unable to continue in existence.







35


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.
      On
      March 29, 2005, Kaire issued a $125,000, 8% interest per annum, two year
      convertible note to the Longview Fund LP. On June 22, 2005, Kaire issued three
      two year convertible notes for an aggregate of a $350,000, 8% interest per
      annum, to the following: 1) $100,000 to the Longview Fund LP., $175,000 to
      the
      Longview Equity Fund LP, and 3) $75,000 to the Longview International Equity
      Fund, LP. On December 9, 2005 Kaire issued a $150,000, 12% interest per annum,
      two year convertible note to the Longview Fund LP.





On
      March
      13, 2006 Kaire issued a $100,000, 12% interest per annum, two year convertible
      note to the Longview Fund LP. On April 11, 2006 Kaire issued a $100,000, 12%
      interest per annum, two year convertible note to the Longview Fund LP.
      Additionally, management is increasing its efforts to generate revenue from
      third-party payers other than Medicare and Medi-Cal.







ITEM 3.
      CONTROLS AND PROCEDURES




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





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





Disclosure
      controls and procedures, no matter how well designed and implemented, can
      provide only reasonable assurance of achieving an entity's disclosure
      objectives. The likelihood of achieving such objectives is affected by
      limitations inherent in disclosure controls and procedures. These include the
      fact that human judgment in decision-making can be faulty and that breakdowns
      in
      internal control can occur because of human failures such as simple errors
      or
      mistakes or intentional circumvention of the established process.


36




PART
      II.
      OTHER INFORMATION




**Item
      1.**  **Legal
      Proceedings**





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





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





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





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





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





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





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





37


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





On
      April
      2, 2003, H.D. Smith filed a complaint against Classic Care, Inc., Kaire
      Holdings, Inc., Sarit Rubenstein, Steven Oscherowitz and Larisa Vernik for
      various causes of action relating amounts owed for certain drugs that were
      delivered to Classic Care. H.D. Barnes is seeking $430,205 plus interest. On
      December 30, 2004 a settlement was reached where Kaire is obligated to pay
      the
      plaintiff $50,000. Kaire’s payment obligation will mature upon court approval of
      the settlement, with $10,000 due immediately (paid July 8, 2005) and the balance
      paid based on 12 monthly installments of $3,077.06 (which includes interest
      of
      7.50%) to commence shortly thereafter. The balance owed as of December 31,
      2005
      was $24,614.70. Kaire is currently in breach of this court order.




McKesson
      Medical - Surgical Inc. v. Effective Health





On
      January 20, 2005, McKesson Medical-Surgical, Inc. (“Plaintiff”) filed a
      complaint against Effective Health, Inc., a subsidiary of Kaire, for failure
      to
      pay the principal sum of $17,466 for goods and/or services. A settlement was
      reached in October 2005 calling for Effective Health to pay $2,000 upon
      execution and $1,300 a month until the balance is paid off.





Except
      as
      otherwise specifically indicated above, we believe that we do not have any
      material liability for any lawsuits, settlements, judgments, or fees of defense
      counsel which have not been paid or accrued as of March 31, 2006.





ITEM
      2  Changes
      in Securities and Use of Proceeds





On
      December 13, 2005, Kaire entered into a subscription agreement with the Longview
      Fund, LP to issue $350,000 in convertible debentures, 12% annual interest rate
      in three traunches. A convertible debenture for $150,000 was issued on December
      13, 2005 and its underlying shares are being registered through this document.
      The second traunch of $100,000 was issued on March 13, 2006 and the third
      traunch of $100,000 was issued on April 14, 2006. The convertible debentures
      can
      be converted into shares of common stock with the conversion price being 70%
      of
      the average of the lowest five closing bid prices of the common stock during
      the
      20 trading days preceding the conversion date.




ITEM
      3.  Defaults
      Upon Senior Securities





None





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





None





ITEM
      5.  Other
      Information





None







38


ITEM
      6.  Exhibits
      and Reports on Form 8-K:








a)
      Exhibits





31.1  Certification of the Chief Executive Officer pursuant to Rule
      13a-14(a)


(
      Section
      302 of the Sarbanes-Oxley Act of 2002)





31.2  Certification of the Chief Financial Officer pursuant to Rule
      13a-14(a)


(
      Section
      302 of the Sarbanes-Oxley Act of 2002)





32.1  Certification
      of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350


(Section
      906 of the Sarbanes-Oxley Act of 2002)





32.2  Certification
      of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350


(Section
      906 of the Sarbanes-Oxley Act of 2002)





(b)  Reports
      on Form 8-K:





None












































39








SIGNATURES











Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.








KAIRE
      HOLDINGS INCORPORATED.


(Registrant)











Dated:
      May 22, 2006  By: /s/ Steven
      R.Westlund


Steven
      Westlund


Chief
      Executive Officer, Chairman








Dated:
      May 22, 2006 By: /s/
      Randy Jones


Randy
      Jones


Chief
      Financial Officer








40