<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20429
                     ---------------------------------------

                                    FORM 10-Q

                                   (Mark One)

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2008

            [ ] 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 0-27227.
                                               --------

                          ALLERGY RESEARCH GROUP, INC.
             (Exact name of registrant as specified in its charter)

            Florida                                            13-3940486
            -------                                            ----------
(State or other jurisdiction of                               (IRS Employer
 incorporation or organization)                            Identification No.)

                 2300 North Loop Road, Alameda, California 94502
                 -----------------------------------------------
                    (Address of principal executive offices)

                 (Registrant's telephone number) (800) 545-9960.
                                                 ---------------

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]  Accelerated filer [ ]  Non-accelerated filer [ ]
Smaller Reporting Company [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 14,666,200 shares of Issuer's voting
common stock were outstanding on August 4, 2008.

<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                            INDEX TO QUARTERLY REPORT
                                  ON FORM 10-Q
                                  JUNE 30, 2008
================================================================================


PART I. FINANCIAL INFORMATION                                               PAGE

     ITEM 1. Financial Statements

             Consolidated Balance Sheets...................................  3

             Consolidated Income Statements................................  4

             Consolidated Statements of Cash Flows.........................  5

             Notes to Consolidated Financial Statements....................  6

     ITEM 2. Management's Discussion and Analysis.......................... 11

     ITEM 3. Quantitative and Qualitative Disclosure about Market Risk .... 19

     ITEM 4T Controls and Procedures....................................... 19

PART II. OTHER INFORMATION

     ITEM 1. Legal Proceedings............................................. 21
     ITEM 1A Risk Factors.................................................. 21
     ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds... 21
     ITEM 3. Defaults Upon Senior Securities............................... 21
     ITEM 4. Submission of Matters to a Vote of Security Holders........... 21
     ITEM 5. Other Information............................................. 21
     ITEM 6. Exhibits...................................................... 21

SIGNATURE.................................................................. 22


                                       2
<PAGE>

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<S>     <C>
                                            ALLERGY RESEARCH GROUP, INC.
                                             CONSOLIDATED BALANCE SHEETS


                                                                                        June 30,        December 31,
                                                                                          2008             2007
                                                                                       (Unaudited)       (Audited)
                                                                                       -----------      -----------
ASSETS
------
Current assets
 Cash and cash equivalents                                                             $ 4,242,373      $ 4,859,156
 Accounts receivable, net                                                                1,000,354          972,354
 Inventories, net  (Note 4)                                                              3,313,931        2,620,337
 Prepaid federal and state income taxes                                                    162,980            1,621
 Prepaid expenses and other current assets                                                 302,468          218,447
                                                                                       -----------      -----------
Total current assets                                                                     9,022,106        8,671,915
                                                                                       -----------      -----------

Property and equipment, net                                                                457,585          477,967
                                                                                       -----------      -----------

 Intangible assets, net                                                                     13,180           13,180
                                                                                       -----------      -----------

Total assets                                                                           $ 9,492,871      $ 9,163,062
                                                                                       ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
 Accounts payable                                                                      $   179,098      $   234,531
 Accrued expenses (Note 5)                                                                 386,296          262,822
 Income taxes payable                                                                        2,860          130,767
 Deferred tax liability                                                                     37,516           45,516
                                                                                       -----------      -----------
Total current liabilities                                                                  605,770          673,636
                                                                                       -----------      -----------

Commitments and contingencies (Note 6)

Stockholders' equity
 Preferred stock, $.25 par value, authorized 1,000,000
    shares issued and outstanding: none                                                       None             None
 Common stock, $.001 par value, authorized 100,000,000 shares
   Issued: 15,105,355; Outstanding: 14,666,200 (6/30/08) and 14,463,805 (12/31/07)          15,105           15,105
 Additional paid in capital                                                              1,204,776        1,158,127
 Retained earnings                                                                       8,004,215        7,666,413
 Less: treasury stock, at cost 439,155 shares (6/30/08) and 641,550 (12/31/07)            (336,995)        (350,219)
                                                                                       -----------      -----------
Total stockholders' equity                                                               8,887,101        8,489,426
                                                                                       -----------      -----------
Total liabilities and stockholders' equity                                             $ 9,492,871      $ 9,163,062
                                                                                       ===========      ===========

See Notes to Condensed Consolidated Financial Statements.

                                                         3
<PAGE>

                                          ALLERGY RESEARCH GROUP, INC.
                                         CONSOLIDATED INCOME STATEMENTS
                                                  (UNAUDITED)


                                                        Three Months Ended               Six Months Ended
                                                            June 30,                         June 30,
                                                      2008             2007            2008             2007
                                                  -----------      -----------     -----------      -----------

Net sales                                         $ 4,052,183      $ 4,072,470     $ 8,485,431      $ 8,159,187
Cost of sales                                       2,514,184        2,482,247       5,334,309        4,988,033
                                                  -----------      -----------     -----------      -----------
Gross margin                                        1,537,999        1,590,223       3,151,122        3,171,154
                                                  -----------      -----------     -----------      -----------

Operating expenses
      Selling, general and administrative           1,361,549        1,163,245       2,559,212        2,247,553
      Research and development                         60,472           66,333         122,628          132,313
                                                  -----------      -----------     -----------      -----------
Total operating expenses                            1,422,021        1,229,578       2,681,840        2,379,866
                                                  -----------      -----------     -----------      -----------

Earnings from operations                              115,978          360,645         469,282          791,288
                                                  -----------      -----------     -----------      -----------

Other income
      Interest expense                                    (94)              --            (421)              --
      Interest income                                  22,026           48,052          55,349           88,409
                                                  -----------      -----------     -----------      -----------
Total other income                                     21,932           48,052          54,928           88,409
                                                  -----------      -----------     -----------      -----------

Earnings before income taxes                          137,910          408,697         524,210          879,697

Provision for income taxes                             44,608          166,581         186,408          355,672
                                                  -----------      -----------     -----------      -----------

Net earnings                                      $    93,302      $   242,116     $   337,802      $   524,025
                                                  ===========      ===========     ===========      ===========

Basic and diluted earnings per share (Note 3)     $      0.01      $      0.02     $      0.02      $      0.04
                                                  ===========      ===========     ===========      ===========


See Notes to Condensed Consolidated Financial Statements.

                                                       4
<PAGE>

                                        ALLERGY RESEARCH GROUP, INC.
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (UNAUDITED)


                                                                                     Six Months Ended
                                                                                         June 30,
                                                                                   2008              2007
                                                                                -----------      -----------
Cash flows from operating activities
       Net earnings                                                             $   337,802      $   524,025
       Adjustments to reconcile net earnings to net cash provided
         by operating activities:
           Depreciation                                                              31,941           33,957
           Change in deferred taxes                                                  (8,000)          (1,227)
       Changes in assets and liabilities
           (Increase) decrease in accounts receivable                               (28,000)          89,817
           (Increase) decrease in inventory                                        (693,594)         187,814
           (Increase) decrease in prepaid expenses and other current assets        (230,980)          (1,870)
           Increase (decrease) in accounts payable and accrued expenses              68,041          255,556
           Increase (decrease) in income taxes payable                             (127,907)          40,697
                                                                                -----------      -----------
Net cash flows (used in) provided by operating activities                          (650,697)       1,128,769
                                                                                -----------      -----------

Cash flows from investing activities
       Acquisition of property and equipment                                        (11,559)         (37,222)
                                                                                -----------      -----------
Net cash flows used in investing activities                                         (11,559)         (37,222)
                                                                                -----------      -----------

Cash flows from financing activities
       Cash paid for the acquisition of treasury shares                             (39,827)         (80,196)
       Cash received from the exercise of employee stock options                     85,300           16,000
                                                                                -----------      -----------
Net cash flows used in financing activities                                          45,473          (64,196)
                                                                                -----------      -----------

(Decrease) increase in cash and cash equivalents                                   (616,783)       1,027,351
Cash and cash equivalents, beginning of period                                    4,859,156        3,159,403
                                                                                -----------      -----------
Cash and cash equivalents, end of period                                        $ 4,242,373      $ 4,186,754
                                                                                ===========      ===========

Supplemental noncash investing and financing activities:
   Cash advanced to employees for exercise of stock options                     $    14,400               --
                                                                                ===========      ===========


See Notes to Condensed Consolidated Financial Statements.

                                                     5
</TABLE>
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008
                                   (UNAUDITED)

Note 1 - Basis of Presentation
------------------------------

         The accompanying unaudited Consolidated Financial Statements of Allergy
         Research Group, Inc. ("the Company") have been prepared in accordance
         with generally accepted accounting principles in the United States for
         interim financial information and the instructions to Form 10-Q and
         Article 10 of Regulation S-X. Accordingly, they do not include all the
         information and footnotes required by generally accepted accounting
         principles for complete financial statements. In the opinion of
         management, all adjustments (which include only normal recurring
         adjustments) necessary to present fairly the financial position,
         results of operations and cash flows for all periods presented have
         been made.

         In the opinion of management, the accompanying unaudited financial
         statements included in this Form 10-Q reflect all adjustments
         (consisting only of normal recurring accruals) necessary for a fair
         presentation of the results of operations for the periods presented.
         The results of operations for the periods presented are not necessarily
         indicative of the results to be expected for the full year. Preparing
         financial statements requires management to make estimates and
         assumptions that affect the reported amounts of assets, liabilities,
         revenue and expenses. Examples include provisions for returns,
         accounting for income taxes, bad debts, length of product life cycles,
         and property, plant and equipment lives for depreciation purposes.
         Actual results may differ from these estimates. The results of
         operations for the period ended June 30, 2008 are not necessarily
         indicative of the operating results that may be expected for the entire
         year ending December 31, 2008. These financial statements should be
         read in conjunction with the financial statements included in the
         Company's Annual Report on Form 10-KSB as of and for the year ended
         December 31, 2007, filed with the Securities and Exchange Commission
         ("SEC") on March 31, 2008.

         The consolidated financial statements include the accounts of Allergy
         Research Group, Inc. and its subsidiary. All significant intercompany
         transactions and balances have been eliminated.


Note 2 - Recent Accounting Pronouncements
-----------------------------------------

         In December 2007, the FASB issued SFAS No. 141(R), "Business
         Combinations," ("SFAS 141(R)"). This Statement replaces the original
         FASB Statement No. 141. This Statement retains the fundamental
         requirements in Statement 141 that the acquisition method of accounting
         (which Statement 141 called the purchase method) be used for all
         business combinations and for an acquirer to be identified for each
         business combination. The objective of this SFAS 141(R) is to improve
         the relevance and comparability of the information that a reporting
         entity provides in its financial reports about a business combination
         and its effects. To accomplish that, SFAS 141(R) establishes principles
         and requirements for how the acquirer: (1) recognizes and measures in
         its financial statements the identifiable assets acquired, the
         liabilities assumed, and any noncontrolling interest in the acquiree;
         (2) recognizes and measures the goodwill acquired in the business
         combination or a gain from a bargain purchase; and (3) determines what
         information to disclose to enable users of the financial statements to
         evaluate the nature and financial effects of the business combination.
         This Statement applies prospectively to business combinations for which
         the acquisition date is on or after the beginning of the first annual
         reporting period beginning on or after December 15, 2008 and may not be
         applied before that date. The Company does not currently expect the new
         standard to have any material impact on its financial statements.

         In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
         Interests in Consolidated Financial Statements - an amendment of ARB
         No. 51" ("SFAS 160"). This Statement amends the original Accounting
         Review Board (ARB) No. 51 "Consolidated Financial Statements" to
         establish accounting and reporting standards for the noncontrolling
         interest in a subsidiary and for the deconsolidation of a subsidiary.
         It clarifies that a noncontrolling interest in a subsidiary is an
         ownership interest in the consolidated entity that should be reported
         as equity in the consolidated financial statements. This Statement is
         effective for fiscal years and interim periods within those fiscal
         years, beginning on or after December 15, 2008 and may not be applied
         before that date. The Company does not currently expect the new
         standard to have any material impact on its financial statements.


                                       6
<PAGE>

         In March 2008, the FASB issued SFAS No. 161, "DISCLOSURES ABOUT
         DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-AN AMENDMENT OF FASB
         STATEMENT NO. 133" ("SFAS 161"). SFAS 161 requires enhanced disclosure
         related to derivatives and hedging activities and thereby seeks to
         improve the transparency of financial reporting. Under SFAS 161,
         entities are required to provide enhanced disclosures relating to: (a)
         how and why an entity uses derivative instruments; (b) how derivative
         instruments and related hedge items are accounted for under SFAS No.
         133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"
         ("SFAS 133"), and its related interpretations; and (c) how derivative
         instruments and related hedged items affect an entity's financial
         position, financial performance, and cash flows. SFAS No. 161 must be
         applied prospectively to all derivative instruments and non-derivative
         instruments that are designated and qualify as hedging instruments and
         related hedged items accounted for under SFAS 133 for all financial
         statements issued for fiscal years and interim periods beginning after
         November 15, 2008. The Company does not currently expect the new
         standard to have any material impact on its financial statements.

         In April 2008, the FASB issued Staff Position ("FSP") No. 142-3
         "DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS ("FSP NO.
         142-3"). FSP No. 142-3 amends the factors that should be considered in
         developing renewal or extension assumptions used to determine the
         useful life of a recognized intangible asset under SFAS No. 142
         "GOODWILL AND OTHER INTANGIBLE ASSETS". FSP No. 142-3 is effective for
         financial statements issued for fiscal years beginning after December
         15, 2008 and interim periods within those fiscal years. The Company
         does not currently expect the new standard to have any material impact
         on its financial statements.

         In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
         Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the
         sources of accounting principles and the framework for selecting the
         principles used in the preparation of financial statements of
         nongovernmental entities that are presented in conformity with
         generally accepted accounting principles (the GAAP hierarchy).
         Statement 162 will become effective 60 days following the SEC's
         approval of the Public Company Accounting Oversight Board amendments to
         AU Section 411, "The Meaning of Present Fairly in Conformity With
         Generally Accepted Accounting Principles." We do not expect the
         adoption of SFAS 162 to have a material effect on our consolidated
         results of operations and financial condition.

         In May 2008, the FASB issued FSP Accounting Principles Board ("APB")
         14-1 "Accounting for Convertible Debt Instruments That May Be Settled
         in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB
         14-1"). FSP APB 14-1 requires the issuer of certain convertible debt
         instruments that may be settled in cash (or other assets) on conversion
         to separately account for the liability (debt) and equity (conversion
         option) components of the instrument in a manner that reflects the
         issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective
         for fiscal years beginning after December 15, 2008 on a retroactive
         basis. We do not expect the adoption of FSP APB 14-1 to have any effect
         on our consolidated results of operations and financial condition.

         In May 2008, FASB issued Financial Accounting Standards No. 163,
         "Accounting for Financial Guarantee Insurance Contracts - an
         interpretation of FASB Statement No. 60." Diversity exists in practice
         in accounting for financial guarantee insurance contracts by insurance
         enterprises under FASB Statement No. 60, Accounting and Reporting by
         Insurance Enterprises. That diversity results in inconsistencies in the
         recognition and measurement of claim liabilities because of differing
         views about when a loss has been incurred under FASB Statement No. 5,
         Accounting for Contingencies. This Statement requires that an insurance
         enterprise recognize a claim liability prior to an event of default
         (insured event) when there is evidence that credit deterioration has
         occurred in an insured financial obligation. This Statement also
         clarifies how Statement 60 applies to financial guarantee insurance
         contracts, including the recognition and measurement to be used to
         account for premium revenue and claim liabilities. Those clarifications
         will increase comparability in financial reporting of financial
         guarantee insurance contracts by insurance enterprises. This Statement
         requires expanded disclosures about financial guarantee insurance
         contracts. The accounting and disclosure requirements of the Statement
         will improve the quality of information provided to users of financial
         statements. This Statement is effective for financial statements issued
         for fiscal years beginning after December 15, 2008, and all interim
         periods within those fiscal years. We do not expect the adoption of
         SFAS 163 to have any effect on our consolidated results of operations
         and financial condition.

         Other recent accounting pronouncements issued by the FASB (including
         its Emerging Issues Task Force ("EITF")), the American Institute of
         Certified Public Accountants ("AICPA"), and the SEC did not or are not
         believed by management to have a material impact on the Company's
         present or future financial statements.


                                       7
<PAGE>

Note 3 - Earnings Per Share
---------------------------

         Basic earnings per share ("EPS") is based on the weighted average
         number of common shares outstanding. Diluted EPS is based on the
         weighted average number of common shares outstanding and dilutive
         common stock equivalents.

<TABLE>
<S>     <C>
                  The computation of basic and diluted earnings per share is as follows:

                                                                   Three Months    Three Months     Six Months      Six Months
                                                                      Ended           Ended           Ended           Ended
                                                                     6/30/08         6/30/07         6/30/08         6/30/07
                                                                   -----------     -----------     -----------     -----------

         Numerator-net earnings                                    $    93,302     $   242,116     $   337,802     $   524,025
                                                                   ===========     ===========     ===========     ===========

         Denominator:

         Weighted average shares used in computing basic EPS        14,556,703      14,546,315      14,498,671      14,534,029
         Net effect of dilutive common shares                               --         149,976              --         159,752
                                                                   -----------     -----------     -----------     -----------
         Weighted average shares used in computing diluted EPS      14,556,703      14,696,291      14,498,671      14,693,781

         Basic earnings per share                                  $      0.01     $      0.02     $      0.02     $      0.04
                                                                   ===========     ===========     ===========     ===========

         Diluted earnings per share                                $      0.01     $      0.02     $      0.02     $      0.04
                                                                   ===========     ===========     ===========     ===========
</TABLE>

Note 4 - Inventories
--------------------

         Inventories consist of the following:

                                         June 30, 2008  December 31, 2007
                                         -------------  -----------------

         Raw materials                    $ 1,474,547      $ 1,719,426
         Finished goods                     1,734,460          842,700
         Supplies                             154,924          108,211
         Reserve for obsolescence             (50,000)         (50,000)
                                          -----------      -----------
                                          $ 3,313,931      $ 2,620,337
                                          ===========      ===========

Note 5 - Accrued Expenses
-------------------------

         Accrued expenses consist of the following:

                                         June 30, 2008  December 31, 2007
                                         -------------  -----------------

         Operating expenses             $     97,251       $    167,719
         Vacation and bonus                  251,000             48,000
         Payroll                              35,214             40,614
         Sales tax                             2,831              6,489
                                        ------------       ------------
                                        $    386,296       $    262,822
                                        ============       ============

Note 6 - Commitments and Contingencies
--------------------------------------

     Line of Credit

         The Company has a Merrill Lynch Working Capital Management Account
         (WCMA) which provides for a line of credit up to $1,500,000 bearing
         interest at the London Interbank Offered Rate (LIBOR) plus 2.75%, due
         monthly. The LIBOR plus 2.75% at June 30, 2008 was 5.22%. The note is
         secured by substantially all of the assets of the Company. The WCMA
         immediately pays down the line of credit when deposits are received.
         When checks are issued, the line of credit is utilized if no cash is
         available. If the line of credit has a zero balance, the WCMA pays
         interest on deposits at Merrill Lynch's money market rate, which as of
         June 30, 2008 was 2.47%. The entire line was available for use as of
         June 30, 2008.


                                       8
<PAGE>

     Purchase Obligations

         As of June 30, 2008, the Company had inventory purchase obligations
         incurred in the normal course of business of $1,026,929 representing
         outstanding purchase orders for inventory.

     Operating Lease (A Related Party Transaction)

         On January 4, 2005, the Company entered into a lease with AriBen
         Corporation, a related party 100% owned by Susan and Stephen Levine,
         the Company's Vice President and CEO/CFO, respectively, and
         collectively, as husband and wife, the majority stockholders of the
         Company, for approximately 29,821 square feet of office and industrial
         space. The lease, which has a term of ten years with options to renew
         for two subsequent periods of ten and five years, respectively, has a
         base monthly rent of $24,000 for the initial period, $30,000 for the
         first option period and $35,000 for the second option period. Rent will
         be adjusted annually during the second five years of each 10-year lease
         period based on the consumer price index, with a minimum increase of
         three percent. No security deposit was required under the lease. Rent
         expense charged to operations during the second quarter of 2008 was
         $72,000 (2007: $72,000). Future minimum rental commitments under
         non-cancelable leases for the next five years are $288,000 per year.

     Asserted and Unasserted Claims

         From time to time the Company is subject to certain asserted and
         unasserted claims encountered in the normal course of business. It is
         the Company's belief that the resolution of these matters will not have
         a material adverse effect on our financial position or results of
         operations; however, we cannot provide assurance that damages resulting
         in a material adverse effect on our financial position or results of
         operations will not be imposed in these matters. The Company accounts
         for contingent liabilities when it is probable that future expenditures
         will be made and such expenditures can be reasonably estimated.

          On or about November 1, 2007, Steven and Kimberly Bronson (the
          "Bronsons") filed a Complaint for Court-Ordered Inspection of
          Corporate Records with the Circuit Court of the 15th Judicial District
          in and for Palm Beach, Florida. The complaint alleges that the
          Bronsons are entitled to inspect and make copies of corporate and
          accounting records of the Company which are not publicly available.
          The request for inspection submitted by the Bronsons was denied by the
          Company based on the inability of the Company to disclose these
          records without violating Regulation FD of the Securities Exchange Act
          of 1934, as amended, and because of the prior publication of
          correspondence and documents exchanged between the Company and the
          Bronsons by Mr. Bronson. It is also our position that Mr. Bronson is
          not entitled to obtain these records because the purposes stated can
          be satisfied through information which has already been made publicly
          available by the Company. This is not a damage lawsuit, but a books
          and records proceeding, where the Bronsons attempt to obtain access to
          certain books and records of the company. We intend to vigorously
          defend against this action. No adjustments were made to our
          consolidated financial statements for the outcome of this uncertainty.

         In March 2006, the Company received a summons from the United States
         District Court for the District of Colorado in an action filed by Pure
         Research Products, LLC, a division of J.A. Sichel & Associates. The
         complaint alleges that the Company violated certain trademarks and
         exclusive license rights held by Pure Research Products, LLC during
         negotiations between the parties and following the dissolution of those
         negotiations. The plaintiff in the action is seeking various forms of
         injunctive relief against the Company as well as damages to be proven
         at trial. The complaint includes a request for treble damages in the
         event the plaintiff is successful. We have made a motion for summary
         judgment regarding the claims. We intend to vigorously defend against
         the allegations and have countersued for breach of contract. Because we
         believe that the plaintiff's claim has no merit, no adjustments were
         made to our consolidated financial statements for the outcome of this
         uncertainty.


                                       9
<PAGE>

Note 7 - Concentration of Credit Risk
-------------------------------------

         The Company is subject to a wide variety of risks in the ordinary
         course of its business, including concentration of sales and vendors,
         as follows:

                  SALES. There were three customers that each accounted for more
         than 10% of the Company's ending trade receivables balance at June 30,
         2008. Trade receivables from these three customers totaled
         approximately $517,000. All of the Company's trade receivables are
         unsecured. Approximately 12% of the Company's total sales for the six
         months ended June 30, 2008 (2007: 13%) were attributable to the same
         single distributor. In the event the Company were to lose that account,
         management anticipates that it would be able to convert the business to
         sales directly to the customers of that distributor. As converted sales
         would be at a higher margin, management does not believe the loss of
         the account would have a material negative impact on sales. However, no
         assurance can be given that, if the Company were to lose this
         distributor, all or any of the customers would transfer directly to the
         Company or that current sales from this group would be maintained at
         current levels.

                  PURCHASES. The Company purchases raw materials and uses
         outside vendors for the manufacture of its products. For the six months
         ended June 30, 2008, the Company had a concentration of approximately
         41% of manufacturing with three separate vendors, who individually
         account for more than ten percent of our purchases. For the six months
         ended June 30, 2007, the Company had a concentration of approximately
         50% of manufacturing with three separate vendors, who individually
         accounted for more than ten percent of our purchases. The Company does
         not currently have written contracts with any of its manufacturers, but
         relies on long-term personal and professional relationships. Management
         believes that, due to the large number of businesses performing this
         type of service in the industry, it would have little difficulty in
         finding viable alternatives in the event any one of these vendors
         became unable or determined not to continue manufacturing the Company's
         products. However, there can be no assurance that suitable, alternative
         manufacturers would be available to the Company when needed or that
         such alternative manufacturers would not result in an increase in costs
         or a change in the quality of the Company's products.

                  PRODUCT. None of the Company's products for the six months
         ended June 30, 2008 or 2007 individually accounted for more than 10% of
         its sales dollars.


Note 8 - Stockholders' Equity
-----------------------------

         COMMON STOCK: The Company has authorized 1,000,000 shares of common
         stock for issuance to key employees under the 1998 Stock Option Plan
         (the "plan"). The objectives of the plan include attracting and
         retaining the best personnel, providing for additional performance
         incentives, and promoting the success of the Company by providing key
         employees the opportunity to acquire common stock under the plan.

The following is a summary of stock option transactions:

                                                Shares under   Weighted Average
                                                   option       Exercise Price
                                                -------------   --------------

         Oustanding - 12/31/07                        293,750           $0.40
         Exercised                                   (249.250)          $0.40
         Forfeited                                    (10,000)          $0.40
         Granted                                           --              --
                                                -------------    ------------
         Outstanding - 6/30/08                             --              --
                                                =============    ============

         During the six months ended June 30, 2008, employee stock options were
         exercised for the purchase of 249,250 shares of common stock at $.40
         per share for cash proceeds of $85,300 and 13-month loans to
         non-officer employees of $14,400 with interest set at the company's
         borrowing rate as of May 12, 2008 (5.34%). As part of the loan
         agreement, the shares are held as collateral until the loan is paid in
         full. Of the options exercised on May 12, 2008, 5,000 of the shares
         that were issued were relinquished a few days later and the related
         loan to the employee was canceled. The exercise was considered canceled
         and the options were accounted for as forfeited. Upon exercise, anyone
         with material financial information signed an agreement which prohibits
         trading of the shares issued for six months.


                                       10
<PAGE>

         TREASURY STOCK. The Company acquired 46,855 shares of outstanding
         common stock at $0.85 per share for an aggregate purchase price of
         $39,827 from an unrelated party on February 15, 2008.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

INTRODUCTION
------------

Management's discussion and analysis of results of operations and financial
condition ("MD&A") is provided as a supplement to the accompanying consolidated
financial statements and footnotes to help provide an understanding of Allergy
Research Group, Inc.'s (the "Company") financial condition, changes in financial
condition and results of operations. The MD&A is organized as follows:

   o     CAUTION CONCERNING FORWARD-LOOKING STATEMENTS AND RISK FACTORS. This
         section discusses how certain forward-looking statements made by the
         Company throughout the MD&A and in the consolidated financial
         statements are based on our present expectations about future events
         and are inherently susceptible to uncertainty and changes in
         circumstances.

   o     OVERVIEW. This section provides a general description of the Company's
         business, as well as recent developments that we believe are important
         in understanding the results of operations and to anticipate future
         trends in those operations.

   o     RESULTS OF OPERATIONS. This section provides an analysis of our results
         of operations for the six-month period ended June 30, 2008 compared to
         the same period in 2007. A brief description is provided of
         transactions and events that impact the comparability of the results
         being analyzed.

   o     LIQUIDITY AND CAPITAL RESOURCES. This section provides an analysis of
         our financial condition and cash flows as of and for the six months
         ended June 30, 2008, including related party transactions.

   o     CRITICAL ACCOUNTING POLICIES. This section provides an analysis of the
         significant estimates and judgments that affect the reported amounts of
         assets, liabilities, revenues and expenses, and related disclosure of
         contingent assets and liabilities.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
--------------------------------------------------------------

The following discussion should be read in conjunction with the Company's
financial statements and the notes thereto and the other financial information
appearing elsewhere in this document. In addition to historical information, the
following discussion and other parts of this document contain certain
forward-looking information. When used in this discussion, the words "believes,"
"anticipates," "expects," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected due to a number of factors beyond our control. The Company does not
undertake to publicly update or revise any of its forward-looking statements
even if experience or future changes show that the indicated results or events
will not be realized. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. You are also
urged to carefully review and consider our discussions regarding the various
factors that affect our business, included in this section and elsewhere in this
report.

In June 2007, the Food and Drug Administration announced a final rule
establishing regulations to require current good manufacturing practices
("cGMP") for dietary supplements. The regulations establish the cGMP needed to
ensure quality throughout the manufacturing, packaging, labeling, and storing of
dietary supplements. The final rule includes requirements for establishing
quality control procedures, designing and constructing manufacturing plants, and
testing ingredients and the finished product. It also includes requirements for
recordkeeping and handling consumer product complaints. The rule has a
three-year phase in period for small business with companies of our size having
until June 2009 to comply. We are currently evaluating the potential impact of
the packaging, labeling and storing portions of the regulations on our financial


                                       11
<PAGE>

statements and operations. Because we do not currently manufacture our vitamin
and nutritional supplement products, our outside vendors will be required to
comply with all applicable governmental regulations, including cGMP. It is
possible that our manufacturers and vendors will pass on the cost of compliance
with these regulations by raising their prices. In that event, we would need to
evaluate the competitive market to determine whether those costs can be passed
on to our own customers. If not, increased prices from our manufacturers and
vendors may adversely affect our own profit margins.

In July 2005, the Codex Alimentarius Commission adopted Guidelines for Vitamin
and Mineral Food Supplements (the "Guidelines"). The Guidelines only apply to
supplements that contain vitamins and minerals that are regulated as foods. The
Guidelines provide criteria for establishing maximum amounts of vitamins and
minerals per daily portion of the supplement as recommended by the manufacturer.
They also address the packaging and labeling of supplements. The restrictions
are expected to lower the dosage of U.S.-manufactured products to standards set
by foreign jurisdictions. The FDA has stated that the Codex Guidelines will not
affect the availability of supplement products to U.S. consumers.

We cannot predict the nature of any future laws, regulations, interpretations or
applications, nor can we determine what effect additional governmental
regulations or administrative orders, when and if promulgated, would have on the
Company's business in the future. They could require the reformulation of
certain products to meet new standards, the recall or discontinuance of certain
products not capable of reformulation, additional record keeping, expanded
documentation of the properties of certain products, expanded or different
labeling, and/or scientific substantiation. Any or all of such requirements
could have a material adverse effect on our results of operations and financial
condition. Currently, we do not believe that compliance with the provisions of
national, state and local environmental laws and regulations will have a
material adverse effect upon the capital expenditures, earnings, financial
position, liquidity or competitive position of the Company.

We face an inherent risk of exposure to product liability claims in the event
that the use of our products results in injury. Such claims may include, among
others, that our products contain contaminants or include inadequate
instructions as to use or inadequate warnings concerning side effects and
interactions with other substances. We do not anticipate obtaining contractual
indemnification from parties supplying raw materials or marketing our products.
In any event, any such indemnification if obtained would be limited by our terms
and, as a practical matter, to the creditworthiness of the indemnifying party.
In the event that we do not have adequate insurance or contractual
indemnification, product liabilities relating to defective products could have a
material adverse effect on our operations and financial condition.

Because of our dependence upon consumer perceptions, adverse publicity
associated with illness or other adverse effects resulting from the consumption
of our products or any similar products distributed by other companies could
have a material adverse effect on our operations. Such adverse publicity could
arise even if the adverse effects associated with such products resulted from
consumers' failure to consume such products as directed. In addition, we may not
be able to counter the effects of negative publicity concerning the efficacy of
our products. Any such occurrence could have a negative effect on our
operations.

Other key factors that affect our operating results are as follows:

         o        Overall customer demand for our various products.
         o        Volume of products ordered.
         o        Mix of products purchased by our customers.
         o        Prices at which we sell our products.
         o        Our ability to manage our cost structure for capital
                  expenditures and operating expenses such as salaries and
                  benefits, freight and royalties.
         o        Our ability to match operating costs to shifting volume
                  levels.
         o        Increases in the cost of raw materials and other supplies,
                  which may impact pricing and our ability to compete or result
                  in lower profit margins if prices are not raised on related
                  products.
         o        The impact of competitive products.
         o        Adequacy and availability of insurance coverage.
         o        Our inability to gain and/or hold market share.
         o        Exposure to and expense of resolving and defending product
                  liability claims and other litigation.
         o        Consumer acceptance of our products.
         o        Managing and maintaining growth.
         o        Customer demands and changes in industry trends.


                                       12
<PAGE>

         o        Market and industry conditions including pricing, demand for
                  products, levels of trade inventories and raw materials
                  availability and changes in applicable laws and government
                  regulation.
         o        The success of product development and new product
                  introductions into the marketplace.
         o        Slow or negative growth in the nutritional supplement
                  industry.
         o        The departure of key members of management.
         o        Our ability to efficiently manufacture our products.
         o        Unexpected customer bankruptcy.
         o        Our board of directors is not independent. On July 21, 2008 we
                  added an additional independent director making fifty percent
                  of the board independent.
         o        Limitations on future financing.
         o        Increases in the cost of borrowings and unavailability of debt
                  or equity capital.
         o        Costs of implementing internal financial controls required by
                  Section 404 of the Sarbanes-Oxley Act of 2002.
         o        Costs of compliance with new cGMP regulations.

OVERVIEW
--------

BUSINESS DESCRIPTION. Allergy Research Group, Inc. (SYMBOL: ALRG) (the "Company"
or "ARG"), together with its wholly-owned subsidiary, Nutricology, Inc., strives
to be an innovative leader in nutraceutical research and product formulation.
Our common stock is traded on the Financial Industry Regulatory Authority's
("FINRA") Over-The-Counter Bulletin Board. Since 1980, we have produced quality,
hypoallergenic nutritional supplements and supplied products to physicians and
health care practitioners worldwide. We develop, contract manufacture, market
and sell vitamins and nutritional supplements throughout the world under the
NutriCology(R) and Allergy Research Group(R) labels. Our products are
distributed through distributors to medical and professional accounts, retail
stores, and directly to consumers. We offer a line of approximately 280
products, including vitamins in both multivitamin and single-entity formulas,
minerals, and herbals. Our products are manufactured in various forms, including
capsules, tablets, softgels, powders (drink mixes) and liquids. We also
distribute certain third-party manufactured products under our labels. These
products account for approximately 20% of all products offered by the Company.
Our principal executive offices are located at 2300 North Loop Road, Alameda,
California 94502 and our telephone number is (800) 545-9960.

FUTURE OPERATIONS. The success of our future operations will depend to a great
extent on the operations, financial condition, and management of the Company. We
intend to expand our position in the vitamin and nutritional supplements
markets. Specifically, our strategy continues to be to: (i) develop new brands
and product line extensions, as well as new products, through our commitment to
research and development; (ii) continue the growth of our balanced distribution
network; (iii) build our execution skills through new operations processes and
decision support systems; (iv) achieve cost superiority through formal
productivity benchmarking and continuous improvement programs; and (v) continue
to improve upon our comprehensive e-commerce plan, which includes a
user-friendly and marketing-driven website that has the ability to accommodate
wholesale orders. We believe that our history and reputation in the field,
multiple distribution channels, broad portfolio of products and packaging and
distribution capabilities position us to be a long-term competitor in the
vitamin and nutritional supplements industries.

We are still collaborating with several entrepreneurs of cutting-edge
science-based products, who have limited resources to bring their products to
market. We look towards working partnerships and/or acquisition of these
businesses to broaden our product line of innovative nutraceuticals. There is
potential for real growth in sales and profit while providing products that
promote general health. The Company's distribution channel to the medical and
professional-practitioners market is key to the successful introduction of
unique products.

We believe that the Company has good relations with all of its current
manufacturers and suppliers. We do not currently have written contracts with any
of our manufacturers, but rely on long-term personal and professional
relationships with our vendors. We believe that, due to the large number of
businesses performing this type of service in the industry, the Company would
have little difficulty in finding viable alternatives in the event any one of
these vendors became unable or determined not to continue manufacturing our
products. Of course, we can give no assurance that this would be the case.


                                       13
<PAGE>

RESULTS OF OPERATIONS

Please refer to the consolidated financial statements, which are a part of this
report, for further information regarding the results of operations of the
Company.

                            PERIOD ENDED JUNE 30, 2008 COMPARED TO JUNE 30, 2007
RESULTS OF OPERATIONS

The following table and discussion is a summary of our consolidated results of
operations:

<TABLE>
<S>     <C>
                                      Three months ended June 30,                      Six months ended June 30,
                                      ---------------------------                      -------------------------
                                                            $          %                                   $          %
                                                          Change     Change                              Change     Change
                                                           from       from                                from       from
                                   2008        2007        2007*      2007*       2008        2007        2007*      2007*

Revenues                        $4,052,183  $4,072,470    -20,287      -0%     $8,485,431  $8,159,187   +326,244      +4%
Cost of sales                    2,514,184   2,482,247    -31,937      -1%      5,334,309   4,988,033   -346,276      -7%
                                 ---------   ---------                          ---------   ---------
Gross profit                     1,537,999   1,590,223                          3,151,122   3,171,154
                                 ---------   ---------                          ---------   ---------
Gross profit as a % of sales         38.0%       39.0%                              37.1%       38.9%
Operating expenses:
   Selling, general and
        Administrative           1,361,549   1,163,245   -198,304     -17%      2,559,212   2,247,553   -311,659     -14%
   Research and development         60,472      66,333     +5,861      +9%        122,628     132,313     +9,685      +7%
                                    ------      ------                            -------     -------
Operating expenses               1,422,021   1,229,578   -192,443     -16%      2,681,840   2,379,866   -301,974     -13%
                                 ---------   ---------                          ---------   ---------

Earnings from operations           115,978     360,645                            469,282     791,288

Interest expense                      (94)                    -94                   (421)                   -421
Interest income                     22,026      48,052    -26,026     -54%         55,349      88,409    -33,060     -37%
                                    ------      ------                             ------      ------

Net earnings before tax            137,910     408,697                            524,210     879,697

Provision for income tax            44,608     166,581   +121,973     +73%        186,408     355,672   +169,264     +48%
                                    ------     -------                            -------     -------

Net earnings                       $93,302    $242,116   -148,814     -61%       $337,802    $524,025   -186,223     -36%
                                   =======    ========                           ========    ========
</TABLE>
__________________
     * + = Favorable change to NET EARNINGS; - = Unfavorable change to NET
EARNINGS.

REVENUES. Our revenues decreased slightly during the second quarter of 2008 and
increased at a modest rate during the first six months of the year. The
year-to-date increase was driven by increased sales to our wholesale customers
and to distributors. We attribute the increase in sales to a combination of the
results of our promotional efforts and the upward trend in ordering patterns of
the distributors.

COSTS OF SALES. Cost of sales increased for the six-month period as a direct
result of the increase in sales compounded by increased cost of materials. We
continue to make a concerted effort to determine that our manufacturers are
maintaining the high standards we and our customers expect. We expect our cost
of sales as a percentage of net sales to fluctuate somewhat as our product mix
fluctuates. Gross profit margins decreased for the period over period comparison
primarily as a result of increased sales to distributors at lower margins than
retail customers or wholesale accounts and increased costs of certain raw
materials. Beginning July 1, 2008 we raised the prices of our products in order
to maintain our margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of costs associated with our
executive, financial, human resources, and customer account management functions
such as compensation costs, including benefits, facilities-related expenses,
advertising and promotions of our products, including our attendance at
tradeshows, and outside professional services such as legal and accounting.
Selling, general and administrative expenses increased during the quarter and
the six -month period primarily due to increased legal fees and costs associated
with pending lawsuits, increased payroll expenses associated with the addition
of a graphic artist and technical support position, and increased medical


                                       14
<PAGE>

insurance costs. We anticipate that selling, general and administrative expenses
will continue to increase over the long term as our business continues to grow
and the costs associated with being a public company continue to increase as a
result of our required reporting requirements, including but not limited to
expenses incurred to comply with the Sarbanes-Oxley Act of 2002 (including,
among other things, compliance with Item 404 financial controls).

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
slightly due to a reallocation of resources. However, we anticipate that
research and development expense could increase over the long term as a result
of the growth of the products we offer, new product opportunities and our
continued efforts to invest in the future and strengthen our position within the
nutritional and supplement market.

INTEREST INCOME. Due to our decreased cash balance, decrease in interest rates
and because we placed excess cash in lower yielding Merrill Lynch institutional
tax-exempt funds, we experienced a decrease in interest income.

PROVISION FOR INCOME TAXES. Provision for income taxes represents federal and
state income taxes based on earnings and changes to deferred taxes.

NET EARNINGS. Net earnings decreased due to the increase in general and
administrative expenses.

SEASONALITY. Historically, we have experienced little seasonal fluctuation in
revenues; however, during the spring and fall we traditionally attend two trade
shows geared toward the retail market. Show discounts are offered and the retail
distributors tend to purchase higher quantities due to the discounts. We attend
trade shows geared toward the professional market throughout the year, but the
shows are smaller and tend to not have an immediate effect on sales. These shows
are useful because they provide personal contact with the professional market
and potentially increase sales in the long run.

As of June 30, 2008, to the best of our knowledge, no known trends or demands,
commitments, events or uncertainties, except as discussed below, have existed
which will have a material effect on our liquidity.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Current Financial Condition

During the six-month period ended June 30, 2008, our working capital increased
by approximately $418,057 to $8,416,336, compared to a working capital at
December 31, 2007 of $7,998,279. Current assets mainly consist of approximately
$4.24 million in cash, $1.00 million in accounts receivable, and $3.31 million
in inventory. We continue to finance our inventory and accounts receivable
through cash generated by operating activities. We believe that the Company's
operating cash flow, cash and cash equivalents, and borrowing capacity under
committed bank credit agreements is sufficient to fund our capital and liquidity
needs for the next twelve months.

Off-Balance Sheet Arrangements

At June 30, 2008, we did not have any relationship with unconsolidated entities
or financial partnerships which other companies have established for the purpose
of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. Therefore, we are not materially exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such
relationships.

Cash Flows

OPERATING ACTIVITIES. Net cash provided by operating activities for both periods
primarily reflects net earnings and net changes in operating assets and
liabilities such as accounts receivable, inventory and accounts payable. Cash
used by operating activities in 2008 was used to increase inventory levels to
take advantage of favorable pricing and to buy ahead to ensure availability on
certain imported items, increased prepaid assets due to tax payments and by a
decrease in income taxes payable offset by an increase in accounts payable and
accrued liabilities. Cash generated by operating activities for 2007 was
primarily a result of a decrease in inventory levels due to the utilization of
inventory on hand, an increase in accounts payable due to the overall varied
timing of payments and purchases, and increases in accrued expenses because
bonuses are paid at the end of the previous year.


                                       15
<PAGE>

INVESTING ACTIVITIES. Net cash flows used in investing activities for the six
months ended June 30, 2008 resulted from cash paid to replace a damaged air
compressor. Net cash flows used in investing activities for the six months ended
June 30, 2007 resulted from payments for a new label printer and a new server.

FINANCING ACTIVITIES. Net cash flows provided by financing activities for the
six months ended June 30, 2008 represents proceeds from the exercise of stock
options of $85,300 offset by $39,827 in cash paid for the purchase of 46,855
shares of our common stock from one of our unaffiliated shareholders. Net cash
flows used by financing activities for the six months ended June 30, 2007
represents $80,196 in cash paid for the purchase of 97,800 shares of our common
stock offset by cash proceeds received of $16,000 for exercise of employee stock
options. There were no cash flows from financing activities during 2006.

CONCENTRATION OF RISK

The Company is subject to a wide variety of risks in the ordinary course of its
business. Some of the more significant of these risks include heavy
concentrations of sales with a few key customers; heavy concentrations of raw
material purchases with a few key suppliers; regulation by various federal,
state and local agencies with regards to the manufacture, handling, storage and
safety of products; and regulation by various agencies with regards to the
labeling and certification of products. The Company is also subject to
competition from other nutritional supplement companies and is dependent on the
continued demand for nutritional supplements by consumers.

          SALES. Approximately 12% of our total sales for the six months ended
June 30, 2008 (2007: 13%) were attributable to the same single distributor. In
the event we were to lose that account, we anticipate that we would be able to
convert the business to sales directly to the customers of that distributor. As
converted sales would be at a higher margin, we do not believe the loss of the
account would have a material negative impact on sales. However, we cannot
assure you that, if we were to lose this distributor, all or any of the
customers would transfer directly to us or that current sales from this group
would be maintained at current levels.

         PURCHASES. We purchase raw materials and use outside vendors for the
manufacture of our products. For the six months ended June 30, 2008, we had a
concentration of approximately 41% of our manufacturing with three separate
vendors who individually account for more than ten percent of our purchases. For
the six months ended June 30, 2007, the Company had a concentration of
approximately 50% of manufacturing with three separate vendors, who individually
accounted for more than ten percent of our purchases. We do not currently have
written contracts with any of our manufacturers, but rely on long-term personal
and professional relationships. We believe that, due to the large number of
businesses performing this type of service in the industry, we would have little
difficulty in finding viable alternatives in the event any one of these vendors
became unable or decided not to continue manufacturing our products. However, we
can give no assurance that suitable, alternative manufacturers would be
available to us when needed or that such alternative manufacturers would not
result in an increase in costs.

          PRODUCT. None of our products in 2008 or 2007 individually accounted
for more than ten percent of our sales dollars.


                                       16
<PAGE>

<TABLE>
<S>     <C>

CONTRACTUAL OBLIGATIONS. The Company's Contractual Obligations and Commercial
Commitments are detailed below:

------------------------------ ---------------------------------------------------------------------------
         Contractual
         Obligations                                        Payments Due by Period
------------------------------ ---------------------------------------------------------------------------
                                                     Less
                                                    Than 1           1-3           4 - 5        After 5
                                   Total             Year           Years          Years         Years
------------------------------ --------------- --------------- -------------- -------------- -------------

Line of Credit (1)                          -               -              -              -             -
------------------------------ --------------- --------------- -------------- -------------- -------------

Operating Leases (2)               $1,980,000        $288,000       $864,000       $576,000      $252,000
------------------------------ --------------- --------------- -------------- -------------- -------------

Purchase Obligations (3)           $1,026,929       1,026,929              -              -             -
------------------------------ --------------- --------------- -------------- -------------- -------------
Total Cash Contractual
Obligations                        $3,006,929      $1,314,929       $864,000       $576,000      $252,000
------------------------------ --------------- --------------- -------------- -------------- -------------
</TABLE>

(1)      This represents the Company's borrowings under its line of credit with
         Merrill Lynch, which had a zero balance as of June 30, 2008. The line
         was used briefly in April 2008 due to timing for the liquidation of
         investments. The Merrill Lynch line of credit provides for maximum
         financing of $1,500,000, bearing interest at the London Interbank
         Offered Rate (LIBOR) plus 2.75%, computed on a monthly basis. As of
         June 30, 2008, the interest rate on the line of credit was 5.22% per
         annum. Because the line of credit is secured by substantially all of
         the assets of the Company, if the Company were to fall into default
         under the terms of our agreement with Merrill Lynch it could have
         material adverse impact on our business and financial position.

(2)      Represents our building lease with AriBen Corporation, a related party.
         See "Related Party Transactions" below. The current monthly obligation
         for the base rent on the lease is $24,000 for approximately 29,821
         square feet.

(3)      Represents outstanding purchase orders for inventory.

RELATED PARTY TRANSACTIONS. Dr. Stephen Levine, the Company's Chief Executive
Officer, Chief Financial Officer and Chairman of the Board of Directors, and
Susan Levine, the Company's Vice President and Secretary, are husband and wife.

On January 4, 2005, we entered into a lease with AriBen Corporation, a related
party 100% owned by Susan and Stephen Levine, for approximately 29,821 square
feet of office and industrial space. The lease, which has a term of ten years
with options to renew for two subsequent periods of ten and five years,
respectively, has a base monthly rent of $24,000 for the initial period, $30,000
for the first option period and $35,000 for the second option period. Rent will
be adjusted annually during the second five years of each 10-year lease period
based on the consumer price index, with a minimum increase of three percent. No
security deposit was required under the lease.

LIQUIDITY RESOURCES. We have approximately $4.24 million in cash and cash
equivalents as of June 30, 2008, which we believe is sufficient to satisfy our
cash requirements over the next twelve months without use of our available line
of credit based our current operating levels. Our future funding requirements
will depend on numerous factors, some of which are beyond our control. These
factors include our ability to operate profitably, our ability to maintain,
recruit and train management and personnel, legal fees and costs associated with
ongoing litigation and our ability to compete with other, better-capitalized and
more established competitors who offer alternative or similar products. We
believe that, given our positive working capital position, we can satisfy our
cash requirements over the next twelve months from operations if we continue to
operate at a profit. Cash flow from operations is expected to provide us with
our capital resources and liquidity needs.

The Company expects to continue to purchase equipment and hire new employees as
is commensurate with the growth of the business. In addition, we will continue
to invest time and effort in research for product development. We know of no
trends that are expected to affect the cost of labor or materials, and sales are
expected to be stable over the next twelve months. See "CAUTION CONCERNING
FORWARD-LOOKING STATEMENTS/RISK FACTORS" above for some of the other variables
that may affect our business and financial results.


                                       17
<PAGE>

CRITICAL ACCOUNTING POLICIES
----------------------------

Our discussion and analysis is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to bad debts, inventories, intangible assets, income
taxes and contingencies. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used or changes in the accounting estimate that are reasonably
likely to occur could materially change the financial statements.

We believe the following critical accounting policies reflect our more
significant estimates and assumptions used in the preparation of our
consolidated financial statements; however, management does not consider any of
the estimates and assumptions to be highly uncertain.

INCOME TAXES

SFAS 109, ACCOUNTING FOR INCOME TAXES, establishes financial accounting and
reporting standards for the effect of income taxes. Accruals for uncertain tax
positions are provided for in accordance with the requirements of FIN 48. The
objectives of accounting for income taxes are to recognize the amount of taxes
payable or refundable for the current year and deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in an
entity's financial statements or tax returns. Judgment is required in assessing
the future tax consequences of events that have been recognized in our financial
statements or tax returns. Variations in the actual outcome of these future tax
consequences could materially impact our financial position or our results of
operations.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We evaluate the collectibility of our trade receivables based on a combination
of factors. We regularly analyze our significant customer accounts, and, when we
become aware of a specific customer's inability to meet its financial
obligations to us, such as in the case of bankruptcy filings or deterioration in
the customer's operating results or financial position, we record a specific
reserve for bad debt to reduce the related receivable to the amount we
reasonably believe is collectible. The allowances are calculated based on
detailed review of certain individual customer accounts, historical rates and an
estimation of the overall economic conditions affecting our customer base. We
review a customer's credit history before extending credit. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. In the
event that our trade receivables become uncollectible, we would be forced to
record additional adjustments to receivables to reflect the amounts at net
realizable value. The accounting effect of this entry would be a charge to
earnings, thereby reducing our net earnings. Although we consider the likelihood
of this occurrence to be remote based on past history and the current status of
our accounts, there is a possibility of this occurrence.


                                       18
<PAGE>

INVENTORY

Our inventory purchases and commitments are made in order to build inventory to
meet future shipment schedules based on forecasted demand for our products. We
perform a detailed assessment of inventory for each period, which includes a
review of, among other factors, demand requirements, product life cycle and
development plans, component cost trends, product pricing and quality issues.
Based on this analysis, we record adjustments to inventory for excess,
obsolescence or impairment, when appropriate, to reflect inventory at net
realizable value. Revisions to our inventory adjustments may be required if
actual demand, component costs or product life cycles differ from our estimates.
In the event we were unable to sell our products, the demand for our products
diminished, other competitors offered similar or better products, and/or the
product life cycles deteriorated causing quality issues, we would be forced to
record an adjustment to inventory for impairment or obsolescence to reflect
inventory at net realizable value. The effect of this entry would be a charge to
earnings, thereby reducing our net earnings. Although we consider the likelihood
of this occurrence to be remote based on our forecasted demand for our products,
there is a possibility of this occurrence.

CONTINGENCIES

From time to time, we are involved in disputes, litigation and other legal
proceedings and the outcomes of potential legal proceedings and claims brought
against us are subject to significant uncertainty. SFAS 5, ACCOUNTING FOR
CONTINGENCIES, requires that an estimated loss from a loss contingency such as a
legal proceeding or claim should be accrued by a charge to earnings if it is
probable that an asset has been impaired or a liability has been incurred and
the amount of the loss can be reasonably estimated. However, the actual
liability in any such litigation may be materially different from our estimates,
which could result in the need to record additional costs. Disclosure of a
contingency is required if there is at least a reasonable possibility that a
loss has been incurred. In determining whether a loss should be accrued we
evaluate, among other factors, the degree of probability of an unfavorable
outcome and the ability to make a reasonable estimate of the amount of loss.
Changes in these factors could materially impact our financial position or our
results of operations. See Part II, Item 1 of this report entitled "LEGAL
PROCEEDINGS" for a description of ongoing litigation and related accounting
adjustments.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

This disclosure is not required for smaller reporting companies.


ITEM 4T.  CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Based on the management's evaluation (with the participation of our President
and Chief Financial Officer), our President and Chief Financial Officer has
concluded that as of June 30, 2008, our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange of 1934
(the "Exchange Act") are effective to provide reasonable assurance that the
information required to be disclosed in this quarterly report on Form 10-Q is
recorded, processed, summarized and reported within the time period specified in
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to the Company's management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosure.


                                       19
<PAGE>

(b) Internal control over financial reporting

MANAGEMENT'S QUARTERLY REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is
intended to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. GAAP. Our internal control over financial reporting should
include those policies and procedures that: (0) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (0) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with applicable GAAP, and that receipts and
expenditures are being made only in accordance with authorizations of management
and the Board of Directors; and (0) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including
Stephen Levine, our Chief Executive Officer and Chief Financial Officer; Fred
Salomon, our President and Laura Johnson, our Controller, We have evaluated the
effectiveness of our internal control over financial reporting and preparation
of our quarterly financial statements as of June 30, 2008 and believe they are
effective. While we believe the present control design and procedures are
effective, future events affecting our business may cause the Company to modify
its controls and procedures.

ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

This quarterly report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this quarterly report.

CHANGES IN INTERNAL CONTROLS

Based on the evaluation as of June 30, 2008, Stephen Levine our Chief Executive
Officer and Chief Financial Officer has concluded that there were no significant
changes in our internal controls over financial reporting or in any other areas
that could significantly affect our internal controls subsequent to the date of
his most recent evaluation and there were no corrective actions during the
quarter with regard to significant deficiencies or material weaknesses.


                                       20
<PAGE>



<PAGE>


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On or about November 1, 2007, Steven and Kimberly Bronson filed a Complaint for
Court-Ordered Inspection of Corporate Records with the Circuit Court of the 15th
Judicial District in and for Palm Beach, Florida. The complaint alleges that the
Bronsons are entitled to inspect and make copies of corporate and accounting
records of the Company which are not publicly available. The request for
inspection submitted by the Bronsons was denied by the Company based on the
inability of the Company to disclose these records without violating Regulation
FD of the Securities Exchange Act of 1934, as amended, and because of the prior
publication of correspondence and documents exchanged between the Company and
the Bronsons by Mr. Bronson. It is also our position that Mr. Bronson is not
entitled to obtain these records because the purposes stated can be satisfied
through information which has already been made publicly available by the
Company. This is not a damage lawsuit, but a books and records proceeding, where
the Bronsons attempt to obtain access to certain books and records of the
Company. We intend to vigorously defend against this action. No adjustments were
made to our consolidated financial statements for the outcome of this
uncertainty.

In March 2006, the Company received a summons from the United States District
Court for the District of Colorado in an action filed by Pure Research Products,
LLC, a division of J.A. Sichel & Associates. The complaint alleges that the
Company violated certain trademarks and exclusive license rights held by Pure
Research Products, LLC during negotiations between the parties and following the
dissolution of those negotiations. The plaintiff in the action is seeking
various forms of injunctive relief against the Company as well as damages to be
proven at trial. The complaint includes a request for treble damages in the
event the plaintiff is successful. We have made a motion for summary judgment
regarding the claims. The Company intends to vigorously defend itself against
the allegations and is countersuing for breach of contract. Because the Company
believes that the plaintiff's claim has no merit, no adjustments were made to
our consolidated financial statements for the outcome of this uncertainty.

ITEM 1A. RISK FACTORS

         This disclosure item is not required for smaller reporting companies.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         Not Applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not Applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not Applicable.

Item 5.  OTHER INFORMATION

         Not Applicable.

Item 6.  EXHIBITS

Exhibits filed herewith

31       Certificate of Stephen A. Levine required by Rule 13a-14(a) or Rule
         15d-14(a) of The Securities Exchange Act of 1934, as adopted pursuant
         to Section 302 of the Sarbanes-Oxley Act of 2002

32       Certificate of Stephen A. Levine Pursuant to 18 U.S.C. Section 1350, as
         adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


                                       21
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                                    SIGNATURE

           Pursuant to the requirements 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.


                                             ALLERGY RESEARCH GROUP, INC.
                                             Registrant



Dated:  August 8, 2008
                                             By: /s/ Stephen A. Levine
                                                 -------------------------------
                                                 Chief Executive Officer and
                                                 Chief Financial Officer


                                       22