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

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

              For the quarterly period ended   September 30, 1998
                                            ------------------------

                                      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. employer
incorporation or organization)                            identification number)

  2139 Pontius Avenue, Los Angeles , California                     90025
  ---------------------------------------------------------------------------
    (Address of principal executive offices)                     (Zip Code)

       Registrant's Telephone number, including area code: (310) 312-9652
                                                           --------------

                     INTERACTIVE MEDICAL TECHNOLOGIES LTD.
--------------------------------------------------------------------------------
 (former, name, address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.        Yes       No  X
                                              ---      ---

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

                                             Outstanding at
               Class of Common Stock       September 30, 1998
               ---------------------      ---------------------
                  $.075 par value           12,794,788 shares

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

                                      -1-
<PAGE>
 
                                  FORM 10-QSB
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                          KAIRE HOLDINGS INCORPORATED

                                     Index

PART I - FINANCIAL INFORMATION

  Item 1. Consolidated Financial Statements

          Condensed Consolidated Balance Sheets at
           December 31, 1997 and September 30, 1998 (unaudited)

          Condensed Consolidated Statements of Operations
           for the three and six months ended September 30, 1997 (unaudited)
           and 1998 (unaudited)

          Condensed Consolidated Statements of Cash Flows
           for the six months ended September 30, 1997 (unaudited)
           and 1998 (unaudited)

          Notes to Condensed Consolidated Financial Statements

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


PART II. - OTHER INFORMATION

  Item 1. Legal Proceedings

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

  Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

                                      -2-
<PAGE>
 
                         PART I. FINANCIAL INFORMATION
                         -----------------------------

   ITEM I.     FINANCIAL STATEMENTS

                  KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                    December 31, 1997 and September 30, 1998


<TABLE> 
<CAPTION> 
                                    ASSETS
                                    ------

                                                 December 31,   September 30,
                                                     1997            1998
                                                 ------------   --------------
                                                                 (unaudited)
   <S>                                           <C>            <C>
                                          
   Current assets                         
      Cash and cash equivalents                   $  35,928       $  22,243
      Accounts receivables, net                      47,431          31,632
      Inventory                                     115,042         115,042
      Prepaid expense                                70,947          38,896
                                                  ---------       ---------
         Total current assets                       269,348         207,813
                                                 
   Furniture and equipment, net                      58,196          21,099
   Other Assets                                                      26,612
   Deposits                                           9,500           9,500
   Patents, net                                      44,691          39,104

                                                  ---------       ---------
       Total assets                               $ 381,735       $ 304,128
                                                  ---------       ---------

<CAPTION>
                     LIABILITIES AND SHAREHOLDERS' DEFICIT
                     -------------------------------------
 
   <S>                                           <C>            <C>
   Current liabilities
      Notes payable                                  25,000          25,000
      Accounts payable and accrued expenses       2,271,946       1,446,855
                                                  ---------       ---------

       Total current liabilities                  2,296,946       1,471,855

   Convertible notes payable                      2,000,100       1,395,099

                                                  ---------       ---------
       Total liabilities                          4,297,046       2,866,954
                                                  ---------       ---------
</TABLE>


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

                                      -3-
<PAGE>
 
                  KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                    December 31, 1997 and September 30, 1998
<TABLE>
  <S>                                                <C>                 <C>
  Shareholders' deficit                         
     Common stock, $0.075 par value             
      authorized 400,000,000 shares,            
      ____________ issued and outstanding                 212,430             222,393
     Additional paid-in-capital                        25,547,395          27,499,534
     Accumulated deficit                              (29,675,136)        (30,284,753)
                                                     ------------        ------------
                                                
       Total Shareholders' Deficit                     (3,915,311)         (2,562,826)
                                                
   Total liabilities and stockholders' deficit       $    381,735        $    304,128
                                                     ------------        ------------
</TABLE>



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

                                      -4-
<PAGE>
 
             INTERACTIVE MEDICAL TECHNOLOGIES LTD. AND SUBSIDARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
             For the Nine Months Ended September 30, 1997 and 1998

<TABLE>
<CAPTION>
                                                Three Months Ended          Nine Months Ended
                                                   September 30,              September 30,
                                              ----------------------    -------------------------
                                                 1997         1998           1997         1998
                                                 ----         ----           ----         ----
<S>                                           <C>           <C>         <C>            <C>
REVENUES                                                   
    Products and Services                        72,392       $ 79,742    $   215,778    $  305,483
    Lease Rentals                                     -              -         90,590             -
                                              ---------     ----------    -----------    ----------
       Total Revenue                              2,392         79,742        306,368       305,483
                                                           
Cost of Revenues                                126,892         35,719        323,067       137,873
                                                           
Gross Profit                                    (54,441)        44,023        (16,699)      167,610
                                                           
Operating Expenses                                         
    Research and development                      5,156         (1,088)        84,495             0
    Selling, general and administrative         234,311         68,077        804,462       691,317
                                              ---------     ----------    -----------    ----------
       Total Operating Expenses                 366,299         66,989        888,957       691,317
                                              ---------     ----------    -----------    ----------
Loss from Operations                           (293,907)       (22,976)      (906,656)     (523,707)
                                                           
Interest Expense (Income) and Other                        
Interest expense - other                         19,292         22,855         80,308        84,710
Interest expense - lease operations                   -              -         23,703             -
Interest Income                                   2,264              -          2,264             -
Net Losses on pending acquisition                     -              -        734,601             -
                                              ---------     ----------    -----------    ----------
       Total interest expense and other          21,887         22,855        840,876        84,710

                                              ---------     ----------    -----------    ----------
 Loss before provision for state              
    income tax                                 (315,794)       (45,831)    (1,747,532)     (608,417)
                                                           
Provision for state income taxes                      -            400            800         1,200
                                                           
Net Loss                                       (315,794)       (46,231)    (1,748.332)     (609,617)
                                              ---------     ----------    -----------    ----------
Basic Loss per Share                          $    0.39     $     0.01    $      2.50    $     0.18
                                                           
Diluted Loss per Share                        $    0.39     $     0.01    $      2.50    $     0.18
                                                           
Weighted average shares outstanding             818,591      3,928,699        698,580     3,432,841
 
</TABLE>

          See the accompanying notes to these consolidated statements

                                      -5-
<PAGE>
 
                  KAIRE HOLDINGS INCORPORATED AND SUBSIDARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Nine Months Ended September 30, 1997 and 1998

<TABLE>
<CAPTION>
                                                      (Unaudited)     (Unaudited)
                                                          1997           1998
                                                     -------------    -----------
<S>                                                  <C>              <C>
Cash flows from operating activities                               
Net Loss                                              $(1,432,538)    $(609,617) 
Adjustments to reconcile net loss to net cash                      
 used in operating activities:                                     
    Amortization and Depreciation                         239,115        42,684
    Common stock issued for services                                    358,530
    Common stock issued for interest on notes                            65,706    
    Compensation expenses related to below-                        
     market stock Options granted                                  
(Increase) decrease in:                                            
    Accounts receivable                                   (12,248)       15,799
    Lease receivable                                      (90,591)            -
    Prepaid expenses and other assets                       4,620         5,439
    Inventories                                                               -
Increase (decrease) in:                                            
    Accounts payable and accrued expenses                 169,595      (174,914)
                                                      -----------     ---------
                                                                   
        Net cash used in operating activities          (1,122,047)     (296,378)
                                                      -----------     ---------
                                                                   
Cash flows from investing activities                               
    Purchase of furniture and equipment                    (2,773)            -
    Investment in affiliates                             (366,912)            -
                                                      -----------     ---------
        Net cash used in investing activities            (369,685)            -
                                                                   
Cash flows from financing activities                               
    Payments on notes payable                                           (10,000)
    Proceeds from issuance of common stock                450,000       132,688
    Proceeds from issuance of convertible notes           908,773       160,000
                                                      -----------     ---------
        Net cash provided by financing activities       1,358,773       282,688
                                                      -----------     ---------
</TABLE>

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

                                      -6-
<PAGE>
 
                  KAIRE HOLDINGS INCORPORATED AND SUBSIDARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
 
                                                    (Unaudited)   (Unaudited)
                                                       1997          1998
                                                    -----------   -----------
<S>                                                 <C>           <C>
 
Net decrease in cash and cash equivalents             (132,959)      (13,685)
                                                     ---------      --------
 
Cash and cash equivalents, beginning of period         192,421        35,928
                                                     ---------      --------
 
Cash and cash equivalents, end of period             $  59,463      $ 22,243
                                                     ---------      --------
</TABLE>

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

                                      -7-
<PAGE>
 
                 KAIRE HOLDINGS INCORPORATED and SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)
                              September 30, 1998

   1.   Significant Risks
        -----------------

        The Company has incurred net losses of $2,066,727 and $12,210,263 for
   the years ended December 31, 1996 and 1997, respectively and an additional
   loss of $1,748,332 and $609,617 for the nine months ended September 30, 1997
   and September 30, 1998.  The loss in 1997 resulted from a combination of
   failed acquisitions and the related write down of investments.  The continued
   loss incurred in the first two quarters of 1998 is a result of remaining
   expenses related to the failed Kaire International acquisition attempt
   coupled by continuing losses in operations, with the loss during the third
   quarter a result of a loss in operations.  The accumulative effect of the
   continuing losses have adversely affected the liquidity of the Company.
   Future losses will likely negatively impact the Company's ability to raise
   future working capital.

        As of September 30, 1998, the Company had an accumulated deficit of
   $30,284,753 and negative working capital of $1,264,042.  In addition, the
   Company remains subject to various business risks including but not limited
   to its ability to maintain vendor and supplier relationships by paying bills
   when due, and overcoming future and ongoing product development, distribution
   and marketing issues.

        The Company's condensed consolidated financial statements have been
   prepared on the assumption the Company will continue as a going concern.  The
   Company has suffered recurring losses from operations, has an accumulated
   deficit, has negative working capital and faces product development and
   distribution issues that raise substantial doubt about its ability to
   continue as a going concern.  The financial statements do not include any
   adjustments relating to the recoverability and classification of asset
   carrying amounts or the amount of liabilities that might result should the
   Company be unable to continue as a going concern.

        The Company's condensed consolidated financial statements have been
   prepared on the assumption the Company will continue as a going concern.  The
   Company has suffered recurring losses from operations, has an accumulated
   deficit, has negative working capital and faces product development and
   distribution issues that raise substantial doubt about its ability to
   continue as a going concern.  The financial statements do not include any
   adjustments relating to the recoverability and classification of asset
   carrying amounts or the amount of liabilities that might result should the
   Company be unable to continue as a going concern.

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

                                      -8-
<PAGE>
 
        In 1993, the Company acquired Venus Management, Incorporated, ("VMI")
   which was incorporated in New York on August 1, 1989.  VMI's principle assets
   at the time were two MRI systems, one which was leased to an MRI service
   provider operating in New York and the second unit which was not operational.
   The non-operational unit was returned to the finance company upon which VMI
   received a release of claims agreement.  Concerning the leased system, on or
   about March 1, 1995, VMI entered into a transfer of interest agreement with
   Siemens Credit Corp., Medical Funding of America ("MFA") and Tri-county
   whereby Kaire gave its corporate guaranty for all of Venus' obligations under
   this agreement.  MFA defaulted on the loan and on April 2, 1997 Siemens
   Credit Corporation filed a civil action against Kaire for the accelerated
   amount due plus costs.  Subsequently, a Transfer of Interest Agreement was
   drawn up between Venus Management, Siemens Credit Corporation and Medical
   Management, Inc. (NYSE symbol CMI) whereby CMI would take over the lease and
   at the same time the legal action was put on hold.  (see legal Proceedings).

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

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

        In December 1997 the Company entered into an agreement (the "Agreement")
   to acquire 80% of Kaire International, Inc. ("KII"), a network marketing firm
   based in Longmont, Colorado, with 1997 annual sales of approximately
   $31,000,000. In exchange for KII's Common Stock, the Agreement called for the
   Company to invest an initial $1,000,000 plus Company Common Stock, and to
   subsequently provide additional capital totaling $2,000,000 by the latter of
   February 15, 1998 or the completion of KII's year-end audit.  Determining
   that the Company was not going to raise the additional capital needed by such
   dates, the Company and KII entered into an agreement whereby the Company
   assigned approximately two thirds of its equity position in KII to a third
   party, and the third party was to fund KII $2,000,000.  For consideration,
   the Company received an option from KII repurchase the same number of KII
   shares that it had assigned to the third party $2,000,000.  The Company was
   unable to raise the funds and the option expired on August 5, 1998.  After
   the occurrence of these events, the Company owns 24% of KII.  A write down of
   $2,632,003 in the KII investment was reflected in the Company's 1997
   financial statements.  KII filed an S-1 Registration Statement on February
   11, 1998 and an Amended S-1 Registration Statements on July 10, 1998 and
   October 23, 1998.  The Registration

                                      -9-
<PAGE>
 
   statement provides for the selling of 1,000,000 shares of KII at $6.00 a
   share. The under writer is the May Davis Group Incorporated, located in
   Baltimore, MD, and the attorney is Gusrae, Kaplan & Bruno located in New
   York, NY. Subsequent to the filing of the amended Registration Statement, KII
   decided not to proceed with the offering. On December 10, 1998, Natural
   Health Trends Corp., ("NHTC") (NASDAQ: Symbol NHTCC), announced it had signed
   an agreement as of November 24, 1998 to purchase certain assets of KII for a
   combination of Series E and Series F Preferred stock, Acquisition Warrants
   and a percentage of NHTC's net income for a period of five years. On February
   19, 1999, NHTC announced that the acquisition was completed. It is not known
   what effect the NHTC agreement will have on Kaire Holding's investment in
   KII, thus due to the uncertainty in Kaire Holding's ability to recover its
   investment in KII, its investment in KII was written off for the year ending
   December 1997.

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

        Due to the above factors, losses are expected to continue at least for
   the immediate future.  In the event working capital is not available to the
   Company, the Company would curtail all non commercial operations while
   accelerating the distribution and sale of nutritional products and its
   efforts to license its contrast microsphere technologies.

        The Company carries no direct product liability insurance, relying
   instead on the coverage afforded by its distributors and the manufacturers
   from whom it obtains products.  These coverages directly protect the insured
   that pay the premiums and only secondarily the Company.  There is no
   assurance that such coverages will adequately cover any claims that may be
   brought against the Company.  In addition, the Company does not have any
   general liability coverage.

   2.   Summary of Significant Accounting Policies
        ------------------------------------------

            Basis of Presentation
            ---------------------

        The accompanying condensed consolidated financial statements have been
   prepared assuming that the Company will continue as a going concern.  Certain
   matters raise substantial doubt about the Company's ability to continue as a
   going concern.  As discussed in Note 1, the Company operates under extreme
   liquidity constraints and, because of recurring losses, increasing difficulty
   in raising necessary additional capital.  Management's plan in regard to
   these matters is described above.  The financial statements do not include
   any adjustments relating to the recoverability and classification of asset
   carrying amounts or the amount and classification of liabilities that might
   result should the Company be unable to continue as a going concern.

        In the opinion of the management the accompanying consolidated financial
   statements contain all adjustments necessary (consisting of only normal
   recurring accruals) to present fairly the financial position at September 30,
   1998, the results of its operations for the three and nine months ended
   September 30, 1998 and the cash flow for nine months ended September 30,
   1998.  Certain information

                                      -10-
<PAGE>
 
   and footnote disclosures normally included in financial statements that would
   have been prepared in accordance with generally accepted accounting
   principles have been condensed or omitted pursuant to the rules and
   regulations of the Securities and Exchange Commission, although management of
   the Company believes that the disclosures in these financial statements are
   adequate to make the information presented therein not misleading. It is
   suggested that these condensed financial statements and notes thereto be read
   in conjunction with the financial statements and the notes thereto included
   in the Company's December 31, 1997 Form 10-KSB.

        The results of operations for the nine months ended September 30, 1998
   are not necessarily indicative of the results of operations to be expected
   for the full fiscal year ending December 31, 1998.

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

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

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

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

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

        On or about February 19, 1998, the Company effected a 1-for-75 reverse
   stock split of its common stock.  All share and per share data have been
   retroactively restated to reflect this stock split.

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

        SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
   encourages the use of the fair value based method of accounting for stock-
   based compensation arrangements under which compensation cost is determined
   using the fair value of stock-based compensation determined as of the date of
   grant and is recognized over the periods in which the related services are
   rendered. The statement also permits companies to elect to continue using the
   current implicit value accounting method specified in Accounting Principles
   Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to

                                      -11-
<PAGE>
 
   Employees," to account for stock-based compensation. The Company has elected
   to use the implicit value based method and has disclosed the pro forma effect
   of using the fair value based method to account for its stock-based
   compensation.

        Income taxes are provided for the tax effects of transactions reported
   in the financial statements and consist of state income taxes currently due.
   No federal income taxes are due as a result of the Company's net operating
   loss carryforwards.

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

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


   3.   Capital Transactions, Convertible Notes Payable and Debentures

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

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

        As a result of the above transactions, the Company's ownership in KII
   has been decreased from 80% to approximately 24% (1,073,196 shares), which
   occurred subsequent to December 31, 1997.

                                      -12-
<PAGE>
 
   Based on the Company's temporary controlling interest in KII, the Company
   accounted for its investment in KII using the equity method.

        A $2,632,000 impairment charge related to the Company's investment in
   KII was recorded in the year ended December 31, 1997 due to the Company's
   subsequent loss of ownership interest and the doubtfulness of recovering this
   investment. Additionally, the Company provided a full valuation charge on the
   remaining balance of the Company's investment in KII equal to $2,062,035.

        As of September 30, 1998, there were approximately 608 shareholders of
   record of the company's Common Stock.

        During the fiscal year ended December 31, 1997, to raise capital, the
   Company issued securities using the exceptions available under the Securities
   Act of 1933 including unregistered sales made pursuant to Section 4(2) of the
   Securities Act of 1933 and pursuant to Regulation S, as follows:

        For the period beginning on or about May 5, 1997 through December 31,
   1997, there were 25,566,804 shares (340,891 shares on a post reverse split
   basis) of common stock sold issued pursuant to Section 4(2) of the Securities
   Act of 1933 and pursuant to Regulation S for approximately $1,222,639.

        For the period beginning May 23, 1997 through December 31, 1997,
   $441,500 of convertible promissory notes were converted into 7,354,321 shares
   (98,058 shares on a post reverse split basis) of common stock. The majority
   of these shares were issued in reliance on Regulation S with the remainder
   made pursuant to Section 4(2) of the Securities Act of 1933.

        1997 quarterly interest payments totaling $6,417.60 due on a convertible
   promissory note held by the Wolas Family Trust were paid with 134,426 shares
   (1,792 shares on a post reverse split basis) of the Company's common stock,
   issued pursuant to Section 4(2) of the Securities Act of 1933.

        On December 18, 1997, 118,209,200 shares (1,576,123 shares on a post
   reverse split basis) of the Company's common stock were issued to the
   shareholders of Kaire International Inc., in exchange for at least 80% of
   Kaire International's outstanding shares of common stock. The Company's
   common stock were issued pursuant to Section 4(2) of the Securities Act of
   1933.
        
        During October through December 1997, the Company issued 8% convertible
   debentures due three years from the date of issuance. The debentures are
   convertible beginning with the 41st day after issuance and at a conversion
   price equal to 70% of the average closing bid price of the Company's common
   stock during the last five days prior to the conversion date. In connection
   with the issuance of these debentures, the Company recorded additional
   interest amounting to $364,000 related to the beneficial conversion feature
   of the debentures. The note holders have certain registration rights. At
   December 31, 1997, convertible debentures outstanding aggregated to $850,000.
   These funds were issued to Kaire International Inc. As of December 31, 1998,
   $225,000 remains to be converted.

        On or about January 1, 1998 through September 30, 1998, the Company
   issued securities using exemptions available under the Securities Act of 1933
   including sales made pursuant to Section 4(2) of

                                      -13-
<PAGE>
 
   the Securities Act of 1933 and pursuant to Regulation S, as follows (please
   note that the below 1998 shares issued reflect the 75 to 1 reverse split that
   occurred on February 19, 1998).

        On or about January 1, 1998 through September 30, 1998 there were 37,153
   shares of common stock sold issued pursuant to pursuant to Regulation S for
   approximately $12,765.

        On or about January 1, 1998 through September 30, 1998, $1,035,654 of
   convertible promissory notes were converted into 8,257,529 shares of common
   stock. The majority of these shares were issued in reliance on Regulation S
   and pursuant to Section 5 of the Securities Act of 1933.

        On or about January 1, 1998 through September 30, 1998, 1,394,138
   registered shares of common stock were issued for consulting services
   rendered.

        Certain 1998 quarterly interest payments through September 30, 1998
   totaling $65,706 due on a convertible promissory note held by various note
   holders were paid with 256,534 shares of the Company's common stock, issued
   pursuant to Section 4(2) of the Securities Act of 1933.

        In February 1998, as a result of a Special Shareholder Meeting, the
   Company effected a 1-for-75 reverse stock split of its common stock. All
   share and per share data have been retroactively restated to reflect this
   stock split.

   4.   Pending Acquisitions
        --------------------

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

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

        In December 1997 the Company entered into an agreement (the "Agreement")
   to acquire 80% of Kaire International, Inc. ("KII"), a network marketing firm
   based in Longmont Colorado with 1997 annual sales of approximately thirty one
   million dollars ($31,000,000). In exchange for KII's

                                      -14-
<PAGE>
 
   Common Stock, the Agreement called for the Company to invest an initial
   $1,000,000 plus Company Common Stock, and to subsequently provide additional
   capital totaling two million dollars ($2,000,000) by the latter of February
   15, 1998 or when their independent accountants signed off on KII's year-end
   audit. Determining that the Company was not going to raise the additional
   capital needed, the Company and KII entered into a third party agreement
   whereby the Company assigned two thirds of its position in KII to a third
   party and the third party was to fund KII two million dollars ($2,000,000).
   For consideration, the Company received an option from KII to purchase back
   the same number of KII shares that it had assigned to the third party, for
   two million dollars ($2,000,000). The Company was unable to raise the funds
   and the option expired on August 5, 1998. The Company currently owns 24% of
   KII and therefore is reported on the equity basis. A write down of $2,632.003
   in the KII investment was reflected in the Company's financial statements
   based on the Company's assignment of approximately two thirds of its equity
   position to a third party for a release of $2,000,000 funding obligation. On
   December 10, 1998, Natural Health Trends Corp., ("NHTC") (NASDAQ: Symbol
   NHTCC), announced it had signed an agreement as of November 24, 1998 to
   purchase certain assets of KII for a combination of Series E and Series F
   Preferred stock, Acquisition Warrants and a percentage of NHTC's net income
   for a period of five years. It is not known what effect the NHTC agreement
   will have on Kaire Holding's investment in KII, thus due to the uncertainty
   in Kaire Holding's ability to recover this investment, the Company wrote off
   its investment in KII of $4,694,038 for the year ending December 1997.

   5.   Contingencies
        -------------

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

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

   SEC Proceeding - Settled

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

        In October 1993, the Company filed a registration statement with the SEC
   to register all of the foregoing 2,506,982 shares with the SEC. Never the
   less, the SEC investigated the above transactions and on October 1995,
   advised the Company that it was filing a civil injunctive action against the
   

                                      -15-
<PAGE>
 
   Company, Dr. William Shell and Clark M. Holcomb for alleged violations of the
   registration provisions of the federal securities laws.

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

   Federal Trade Commission Proceeding - Settled

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

   Siemens Credit Corporation  - MRI Equipment Assigned to Third Party

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

                                      -16-
<PAGE>
 
   Nutra Quest Inc. - Counter Claim Settled

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

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


   M&A West, Inc. - Claim Against Company for Breach of Contract

     On or about July 2, 1998, M&A West, Inc. a Nevada corporation, filed a
   Complaint against the Company claiming acts that constitute a breach of
   action.   M&A West, Inc. is a public relations firm that was contracted to
   help the Company obtain additional funding through the creation of interest
   in our stock.  Kaire contends that M&A West did not perform as contracted and
   in turn filed an answer and a counterclaim for return of compensation paid.
   The parties are scheduled to attend Non-Binding Arbitration on March 29,
   1999.   The maximum award is $40,000.  Currently settlement offers have
   exchanged and are being reviewed by both sides.

   Ex-employee Files Various Claims against the Company

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

     The response to the complaint was filed January 29, 1999 with the discovery
   process to begin shortly thereafter.  The status conference is scheduled for
   June 18, 1999.  It is the opinion of the Company that there is no basis for
   the above claims, however, there can be no assurance that the Company will
   prevail.

                                      -17-
<PAGE>
 
     Except as otherwise specifically indicated above, management believes that
   the Company doesn't have any material liability for any lawsuits,
   settlements, judgments or fees of defense counsel which have not been paid or
   accrued as of December 31, 1997.  However, there can be no assurance that the
   Company will prevail in any of the above proceedings.  Also the Company may
   be required to continue to defend itself resulting in substantial additional
   expense.  In the event the Company is unable to pay the defense costs
   associated with the foregoing an unfavorable settlement or judgment could be
   awarded against the Company which could have a material adverse effect upon
   the Company.

                                      -18-
<PAGE>
 
     Item 2.  Management's Discussion and Analysis or Plan of Operation

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

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

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

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

                                      -19-
<PAGE>
 
   Determining that the Company was not going to raise the additional capital
   needed, the Company and KII entered into a third party agreement whereby the
   Company assigned two thirds of its position in KII to a third party and the
   third party was to fund KII two million dollars ($2,000,000). For
   consideration, the Company received an option from KII to purchase back the
   same number of KII shares that it had assigned to the third party, for two
   million dollars ($2,000,000). The Company was unable to raise the funds and
   the option expired on August 5, 1998. The Company currently owns 24% of KII
   and therefore is reported on the equity basis. A write down of $2,632.003 in
   the KII investment was reflected in the Company's financial statements based
   on the Company's assignment of approximately two thirds of its equity
   position to a third party for a release of $2,000,000 funding obligation. On
   December 10, 1998, Natural Health Trends Corp., ("NHTC") (NASDAQ: Symbol
   NHTCC), announced it had signed an agreement as of November 24, 1998 to
   purchase certain assets of KII for a combination of Series E and Series F
   Preferred stock, Acquisition Warrants and a percentage of NHTC's net income
   for a period of five years. It is not known what effect the NHTC agreement
   will have on Kaire Holding's investment in KII, thus due to the uncertainty
   in Kaire Holding's ability to recover this investment, the Company wrote off
   its investment in KII of $4,694,038 for the year ending December 1997.

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

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

                                      -20-
<PAGE>
 
    Results of Operations

   Three and Nine Months Ended September 30, 1997 Compared to September 30, 1998

<TABLE>
<CAPTION>
                                                                  For the                      For the
                                                           Three Months Ended            Nine Months Ended
                                                              September 30,                September 30,
                                                        -----------------------       ------------------------
                                                          1997          1998            1997           1998
                                                          ----          ----            ----           ----
<S>                                                     <C>            <C>            <C>            <C>
   ($ Thousands)
 
   Revenues - Products and Services
     Microspheres & Lab Services                          $ 72          $   80         $ 216           $ 305
     Fat Sequestration - License Fees                                                              
       and Royalties                                         -               -                             -
                                                          ----          ------         -----           -----
                                                            72              80           216             305
                                                                                                   
   Cost of Revenues                                                                                
     Microspheres & Lab Services                            55              36           107             138

     Fat Sequestration - License Fees                                                              
       And Royalties                                         -               -             -               -
                                                          ----          ------         -----           -----
                                                            55              36           107             138
   Gross Margin Product & Services                          17              44           109             167
                                                          ----          ------         -----           -----
                                                                                                   
                                                                                                   
   Revenues - Lease Operations                               -               -            90               -
   Cost of Revenues - Lease operations                      72               -           216               -
                                                          ----          ------         -----           -----
     Gross margin - lease operations                       (72)                         (126)              -
                                                          ----          ------         -----           -----
</TABLE>

     The three and nine months ended September 30, 1998, revenues from products
   and services were approximately $79,742 and $305,483, an increase of $7,352
   or 10% and $89,705 or 42% from the same period in 1997. The increase was due
   to a combination of new customers and increased activity by the current
   Company's clients.

     Gross profit for products and services was $44,023 and $167,610 for three
   and nine months ended September 30, 1998, an increase of $27,023 or 152% and
   $58,521 or 27% over the same periods prior year. The increase in gross profit
   for the quarter was a mainly a result in reduced head count plus lower
   equipment costs and a reduction in cost of supplies.  The increase in profit
   for the nine months ending September 30, 1998 is a result for increase sales
   plus reduced head count and savings directly from cost reductions.  Lease
   operations in 1997 experienced an additional decrease in gross margin due to
   expenses relating to the MRI equipment which had not be assigned to a third
   at that time.

     Research and development expense decrease in the three and nine month
   period ended September 30, 1998 as a result if no new R&D expenditures in
   1998.  There were no new R&D projects entered into in 1998.

     SG&A expense decreased to $68,077 from $234,311 for the three month period
   ended September 30, 1998 and decreased to $391,317 from $804,462 for the nine
   month period ended September 30, 1998.  The three month decrease resulted
   from reduced payroll expense and the phasing out of outside consultants.  The
   decrease in the nine month figure is due cost reductions throughout all areas
   of administration.

     Interest expense for operations for the three and six month period ended
   September 30, 1998 was $22,855 compared to $19,292 for the comparable three
   month period prior year and $84,710 compared to $80,308 for the comparable
   nine month period prior year.  The increase resulted from interest due on
   convertible notes which were issued during first quarter of 1998.  The
   decrease in interest expense on lease operations is due to the assignment of
   the MRI lease to a third party in 1997.

                                      -21-
<PAGE>
 
     No provision was made for Federal income tax since the Company has incurred
   significant net operating losses from inception. Through September 30, 1998,
   the Company incurred net operating losses for tax purposes of approximately
   $30,284,753. The net operating loss carry forward may be used to reduce
   taxable income through the year 2012. 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
   beginning in 1993.


     Liquidity and Capital Resources
     -------------------------------

     The Company's revenues have been insufficient to cover acquisition costs,
   cost of revenues and operating expenses.  Therefore, the Company has been
   dependent on private placements of common stock securities, bank debt, loans
   from private investors and the exercise of common stock warrants in order to
   sustain operations.  In addition, there can be no assurances that private or
   other capital will continue to be available, or that revenues will increase
   to meet the Company's cash needs, or that a sufficient amount of the
   Company's common stock or other securities can or will be sold or that any
   common stock purchase options/warrants will be exercised to fund the
   operating needs of the Company.
 
     On September 30, 1998 the Company had assets of $304,128 compared to
   $381,735 on December 31, 1997. The Company had a total stockholders' deficit
   of $2,562,826 on September 30, 1998 compared to a deficit of $3,915,311 on
   December 31, 1997, a decrease of $1,351,485. This decrease for the nine month
   period ended June 30, 1998 was the result of an increase of $1,962,102 in
   stockholders equity consisting of the following; 1) issuance of stock for
   note conversions, sale of stock and stock issued for interest totaling
   $1,520,809 and 2) stock and stock options issued for services totaling
   $441,293 and 3) offset by the annual net operating loss of $609,617.

     As of September 30, 1998 the Company's working capital position decreased
   $763,356 from a negative $2,027,598 at December 31, 1997 to a negative
   $1,264,042, primarily as a result of a decrease in accounts payable and
   miscellaneous accruals of $825,091 offset by a decrease in receivables of
   $15,799, a decrease in prepaid expenses of 32,051 and a decrease in cash of
   $13,685.

     In order to meet its current operating needs, the Company has cut all its
   operations except for the products and services sold through its E-Z
   division, including consolidation of operations to West Los Angeles,
   headcount reductions and elimination of all consultants and financial
   advisors. Going forward, the company's plan of operation is to expand
   its efforts on the sale of its colored microspheres and related laboratory
   and diagnostic services, as well as launch related health products through 
   an internet e-commerce site the Company is developing.

     Outlook

     The Company has developed a new strategic plan that is expected to expand
   the Company's presence and provide its customers with the ability to transact
   business in a secure and informed environment via an internet e-commerce
   site. It is anticipated that this facility will be operational sometime in
   April 1999.

     Along with the Company's current product line, the Company will be 
   introducing approximately eighteen new products which fall within the
   following five categories: 1) sport nutrition, 2) executive nutrition, which
   will provide nutritional products for people in high stress positions, 3)
   Specialty Nutrition, which will provide nutritional assistance for people
   with special physical needs, 4) Ayurveda Medicinal, which are traditional
   products that focus on the bodies main organs, and 5) Aphrodisiac Products.
   There will be sixteen to eighteen additional products introduced within the
   subsequent thirty to sixty days.

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

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

     Although there can be no assurance that the Company will be successful in 
   its attempt to implement the new business, the Company has already executed
   agreements with key manufactures and a fulfillment center and is on schedule
   to debut the new commercial site as planned.

     Year 2000 Issue

     The Company has attempted to evaluate the impact of the year 2000 issue
   on its business and 

                                      -22-
<PAGE>
 
   does not expect the amounts, if any, to be expensed to be material. No such
   costs have been expensed to date, since the Company uses off the shelf
   software.

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


                          PART II.  OTHER INFORMATION
                          ---------------------------
                                        

     Item 1.  Legal Proceedings

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

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

   SEC Proceeding - Settled

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

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

      The Company entered into a consent decree ("Decree") with the SEC in which
   in the Company, 

                                      -23-
<PAGE>
 
   without admitting or denying any wrongdoing, would be enjoined from violating
   the registration provisions of the federal securities laws in the future. The
   SEC accepted the Decree in June, 1997. No monetary penalties were assessed
   against the Company.

   Federal Trade Commission Proceeding - Settled

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

   Siemens Credit Corporation  - MRI Equipment Assigned to Third Party

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

   Nutra Quest Inc. - Counter Claim Settled

      On or about October 17, 1997, the CEO of Nutra Quest, Inc. ("CEO"),
   considered a wholly owned subsidiary of Kaire Holdings (formerly Interactive
   Medical Technologies, Ltd. (the "Company")) was terminated.  On or about that
   time, the CEO took possession of and removed certain company financial and
   administrative records of the Company and disputed the Company's ownership of
   Nutra Quest, Inc.  

                                      -24-
<PAGE>
 
   The Company obtained a permanent injunction preventing CEO from representing
   himself as Nutra Quest Inc. and filed a complaint concerning ownership of
   Nutra Quest Inc. The CEO appealed the injunction and served the Company a
   cross complaint in July 1998. Concerning the Appeal, Nutra Quest's opening
   appellate brief was due on September 11, 1998. Concerning the Cross-
   Complaint, on August 21, 1998, the Company filed the following motions; 1)
   Demurrer to Cross-Complaint, 2) Motion to Strike Cross-Complaint and 3)
   Motion to Dismiss Cross-Complaint. On November 3, 1998 the respective parties
   engaged mediation and successfully and completely resolved all claims. The
   settlement is a "walk away" for all involved and does not require payment or
   receipt of any funds or transfer of any assets or property.

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


   M&A West, Inc. - Claim Against Company for Breach of Contract

      On or about July 2, 1998, M&A West, Inc. a Nevada corporation, filed a
   Complaint against the Company claiming acts that constitute a breach of
   action. M&A West, Inc. is a public relations firm that was contracted to help
   the Company obtain additional funding through the creation of interest in our
   stock. Kaire contends that M&A West did not perform as contracted and in turn
   filed an answer and a counterclaim for return of compensation paid. The
   parties are scheduled to attend Non-Binding Arbitration on March 29, 1999.
   The maximum award is $40,000. Currently settlement offers have exchanged and
   are being reviewed by both sides.

      Except as otherwise specifically indicated above, management believes that
   the Company doesn't have any material liability for any lawsuits,
   settlements, judgments or fees of defense counsel which have not been paid or
   accrued as of December 31, 1997.  However, there can be no assurance that the
   Company will prevail in any of the above proceedings.  Also the Company may
   be required to continue to defend itself resulting in substantial additional
   expense.  In the event the Company is unable to pay the defense costs
   associated with the foregoing an unfavorable settlement or judgment could be
   awarded against the Company which could have a material adverse effect upon
   the Company.

   Ex-employee Files Various Claims against the Company

      On November 18, 1998, an ex-employee who was released from the Company on
   or about January 1998 due to downsizing, filed suit against the Chief
   Executive Officer and the Company for sexual harassment/discrimination,
   failure to maintain a work environment free from harassment, wrongful
   termination/constructive discharge in violation of public policy, breach of
   implied-in fact contract, breach of covenant of good faith and fair dealing,
   intentional infliction of emotional distress, negligence and retaliation.

      The complaint was served the last week of December 1998. The damages
   prayed are as follows: special damages - $250,000, general damages -
   $1,000,000 and punitive damages - $3,000,000.

                                      -25-
<PAGE>
 
      The response to the complaint was filed January 29, 1999 with the
   discovery process to begin shortly thereafter.  The status conference is
   scheduled for June 18, 1999.  It is the opinion of the Company that there is
   no basis for the above claims, however, there can be no assurance that the
   Company will prevail.

      While the ultimate outcome of these issues, if claims were asserted and
   litigated, is complicated and not free from doubt, management with the advice
   of legal counsel believes, on the basis of the facts currently known, that it
   is not probable that the Company would have any material liability.  However,
   there can be no assurance that the Company will prevail in any of the above
   proceedings.  Also the Company may be required to continue to defend itself
   resulting in substantial additional expense.  In the event the Company is
   unable to pay the defense costs associated with the foregoing an unfavorable
   settlement or judgment could be awarded against the Company which could have
   a material adverse effect upon the Company

      The Company currently has no firm commitments for material capital
   expenditures, with any such future commitments being dependent upon the
   availability of funds.  The Company does not anticipate that future
   compliance with existing environmental and occupational safety regulations
   will have a significant impact on its capital expenditures or on its
   financial condition or future operating results.

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

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

      On or about January 30, 1998, a proposal to 1) reverse split the Company's
   common stock up to and not to exceed a reverse ratio of seventy-five to one,
   2) amend the Company's Articles of Incorporation changing the Company name to
   Kaire Holdings Incorporated and 3) changing the Company's NASDAQ symbol to
   KHI was voted and authorized by a majority of Kaire Holdings, Inc.
   shareholders.  These changes became effective on February 19, 1998.
        
   Item 6.  Exhibits and Reports on Form 8-K:

      (a)  Exhibits

           27  Financial Data Schedule

      (b)  The Company filed the following Reports on form 8-K:

           1.  Form 8-K dated  March 23, 1998: Items 4, 5 and 7.

                                      -26-
<PAGE>
 
                                  SIGNATURES
                                  ----------

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

                         KAIRE HOLDINGS INCORPORATED.
                       --------------------------------
                                 (Registrant)



   Date: March 9, 1999                 By: /s/ STEVEN R. WESTLUND
                                          --------------------------
                                           Steven Westlund
                                           (Chief Executive Officer)


   Date: March 9, 1999                 By:  /s/ PETER T. BENZ
                                          --------------------------
                                           Peter T. Benz
                                           (President)


   Date: March 9, 1999                 By:  /s/ OWEN M. NACCARATO
                                          --------------------------
                                           Owen M. Naccarato
                                           (Chief Financial Officer)

                                      -27-