<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
      OF 1934
      For the fiscal year ended: July 31, 2001
                                ---------------

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
      ACT OF 1934
      For the transition period from           to
                                    -----------  ---------------

                         Commission file number 0-23624

                              IVC INDUSTRIES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Delaware                                     22-1567481
  (State or other jurisdiction of            (IRS Employer Identification No.)
  incorporation or organization)


                 500 Halls Mill Road, Freehold, New Jersey 07728
                 -----------------------------------------------
                    (Address of principal executive offices))

                  Registrant's telephone number: (732) 308-3000
                                                  -------------

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

         Securities registered under Section 12(g) of the Exchange Act:
                         Common Stock ($0.08 par value)

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

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

As of October 12, 2001, 2,247,797 shares of Common Stock of the registrant were
outstanding and the aggregate market value of Common Stock held by
non-affiliates was approximately $1,940,133.

Portions of our Proxy Statement to be delivered to our shareholders in
connection with our 2002 annual meeting of shareholders are hereby incorporated
by reference into Part III of this Report.

<PAGE>

                              IVC INDUSTRIES, INC.

                                TABLE OF CONTENTS

                           Annual Report on Form 10-K
                     For the Fiscal Year ended July 31, 2001


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                                                                                                              Page No.
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PART I

<S>      <C>                                                                                                    <C>
Item 1   Description of Business..................................................................................1

Item 2   Description of Property.................................................................................12

Item 3   Legal Proceedings.......................................................................................13

Item 4   Submission of Matters to a Vote of Security Holders.....................................................13


PART II

Item 5   Market For Common Equity and Related Shareholder Matters................................................14

Item 6   Selected Financial Data.................................................................................15

Item 7   Management's Discussion and Analysis of Financial Condition

         and Results of Operations...............................................................................16

Item 7A  Quantitative and Qualitative Disclosures About Market Risk..............................................20

Item 8   Financial Statements and Supplementary Data.............................................................21

Item 9   Changes In and Disagreements With Accountants on Accounting and Financial Disclosure....................21


PART III

Item 10     Directors and Executive Officers of the Registrant...................................................21

Item 11     Executive Compensation...............................................................................21

Item 12     Security Ownership of Certain Beneficial Owners and Management.......................................21

Item 13     Certain Relationships and Related Transactions.......................................................22


PART IV

Item 14     Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................22
</TABLE>

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                                     PART I

ITEM 1 DESCRIPTION OF BUSINESS

THE COMPANY

     IVC Industries, Inc. (the "Company," which may also be referred to as
"IVC," "we," "us," or "our") was incorporated in the State of Delaware in 1971.
The Company is engaged in the manufacturing, packaging, sale and distribution of
branded and store brand (private label) vitamins and nutritional supplements.
The Company's Fields of Nature(R), LiquaFil(R), Rybutol(R) and Nature's
Wonder(R) brands, as well as the Company-manufactured store brands, are sold in
national and regional drug store, club stores, supermarket and mass
merchandising chains. The Company's Synergy Plus(R) brand is sold primarily in
health food stores and its Nature's Wonder(R) brand is also sold through
independent drug stores. The Company's products are also marketed
internationally under its own brands and private brands, and are sold in bulk
form.

     The Company markets over 600 different products, which are packaged under
various labels and bottle counts. They are sold in single vitamin, herb and
other nutritional supplements as well as in multivitamin combinations, with
varying potency levels in tablets (including chewable and time released
tablets), powders, two-piece hard shell capsules and soft gelatin encapsulated
capsules ("softgels"). The Company manufactures virtually all of its products
(See "Manufacturing and Packaging").

     On July 8, 1999, the shareholders of the Company approved an eight-for-one
reverse split of the common stock of the Company. The reverse split became
effective July 8, 1999. All share information included in this Report has been
restated to reflect the reverse stock split.

     On July 13, 1999, the Company completed the sale of its Vitamin Specialties
Corp. ("VSC") subsidiary to Archon Vitamin Corporation. VSC operated 16 retail
stores located in New Jersey and Pennsylvania and a mail order operation. The
assets of VSC consisted primarily of leases for its stores, its mail order
operations and its inventory located in the retail stores and the Company's
warehouse in Freehold, New Jersey.

FACTORS THAT COULD AFFECT OUR FUTURE BUSINESS

     LIQUIDITY

     For the year ended July 31, 2001, the Company continued to experience
losses from its operations in the amount of $5,909,000. These losses are
attributable to an overall softness in the market for herbal and nutritional
products, resulting in significantly reduced sales levels for the Company.

     At April 30, 2001, the Company was not in compliance with the minimum
tangible net worth covenant contained in the Company's loan and security
agreement with Congress Financial Corporation, a subsidiary of First Union
Corporation. On June 13, 2001, the Company entered into an amended loan and
security agreement with Congress. Under the amended agreement, Congress waived
the event of default existing as of April 30, 2001, and the rate of interest was
increased from rates ranging from the prime rate plus .75% - 1% to an amended
rate of the prime rate plus 3%,

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increasing to 5% in the event of termination or non-renewal of the loan, or if
an event of default occurs. The amended agreement also provides for a $500,000
permanent special reserve, an amendment fee of $50,000, and requires the Company
to maintain revised minimum tangible net worth amounts.

     The Company has been pursuing, among other initiatives; i) obtaining
alternative sources of financing, ii) seeking additional sales opportunities
within its core business, iii) seeking new sales opportunities through
non-traditional channels of distribution, iv) reducing expenses to a level that
would provide the Company with sufficient cash flows to meet its obligations, v)
merger or sale of the Company, and/or vi) a combination of any of the foregoing.

     On September 21, 2001, the Company signed a non-binding letter of intent
with Inverness Medical Innovations, Inc. ("Innovations") for Innovations to
acquire all of the outstanding stock of the Company. As contemplated by the
letter of intent, each shareholder of the Company would receive from Innovations
$2.50 cash for each share of the Company's common stock held by such
shareholder, except that certain of the Company's principal shareholders will
receive either cash, restricted shares of common stock of Innovations or a
combination thereof, valued at $2.50 for each share of the Company's common
stock held by such shareholders.

     Innovations is a majority-owned subsidiary of Inverness Medical Technology,
Inc. ("Inverness"). Inverness has agreed to be acquired by Johnson & Johnson. As
part of the pending acquisition by Johnson & Johnson, Inverness plans to
restructure its operations so that its women's health, nutritional supplements
and clinical diagnostics businesses are held by Innovations. Innovations will
then be split-off from Inverness as a separate, publicly-owned company based in
Waltham, Massachusetts.

     The acquisition of the Company by Innovations is subject to a number of
conditions, including negotiation of a definitive acquisition agreement,
approval by Innovations' and the Company's boards of directors, approval by the
Company's shareholders, modification of loan agreements with the Company's
principal lender, satisfactory due diligence, and completion of the pending
split-off of Innovations and merger of Inverness with Johnson & Johnson. The
letter of intent is non-binding, and there can be no assurance that the Company
will be able to reach a definitive agreement with Innovations, or that even if
it does enter into a definitive agreement with Innovations, that Innovations
will complete the acquisition of the Company or that it will acquire the Company
on the terms described in the letter of intent.

     Four shareholders of the Company holding approximately 42% of the Company's
outstanding common stock have entered into voting agreements with Innovations.
The voting agreements require these shareholders to vote all of the shares of
the Company common stock they own in favor of the acquisition of the Company by
Innovations and against any competing proposal. The voting agreements expire on
January 19, 2002 if the Company and Innovations have not entered into a
definitive acquisition agreement by that date.

     If we cannot achieve any of the foregoing, we may need to modify our
business objectives or reduce or cease certain or all of our operations.

     Although there can be no assurances that the Company will be able to
achieve any of the foregoing initiatives, the financial statements included in
this Report 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.

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     COMPETITION

     The market for vitamins and other nutritional supplements is highly
competitive. See "Competition." The Company's higher-margin branded products
compete with the brands of vitamin distributors and manufacturers that are
substantially larger than the Company and have greater financial resources to
devote to advertising, marketing and promotion of their products (including,
without limitation, the distribution of free trial products). Many of these
manufacturers are also the Company's competitors for the lower-margin private
label business. If one or more of these manufacturers significantly reduce their
prices on existing products in an effort to gain market share or aggressively
promote new products in an effort to enter a market, the Company's results of
operations or market position could be adversely affected.

     INDUSTRY CONSOLIDATION

     The Company's core business products are distributed through leading chain
drug, supermarket and mass merchandising retailers. If the current consolidation
trend among vitamin retailers continues, the number of customers of the Company
could decline, resulting in increased customer concentration which could have an
adverse effect on the Company. There can be no assurance as to what other
effects, if any, the continued consolidation among the Company's retail
customers will have on the Company.

     NEW PRODUCT DEVELOPMENT

     The Company's failure to develop and introduce new products could have an
adverse effect on the Company. See "Research and Development".

     EFFECT OF ADVERSE PUBLICITY

     The Company's products consist of vitamins, minerals, herbs and other
ingredients that the Company regards as safe when taken as suggested by the
Company and that various scientific studies have suggested may involve health
benefits. While the Company conducts extensive quality control testing on its
products, the Company generally does not conduct or sponsor clinical studies
relating to the benefits of its products. The Company is highly dependent upon
consumers' perception of the overall integrity of its business, as well as the
safety and quality of its products and similar products distributed by other
companies which may not adhere to the same quality standards as the Company. The
Company could be adversely affected if any of the Company's products or any
similar products distributed by other companies should prove or be asserted to
be harmful to consumers or should scientific studies provide unfavorable
findings regarding the effectiveness of such products. The Company's ability to
attract and retain distributors could be adversely affected by negative
publicity relating to it or to other direct sales organizations or by the
announcement by any governmental agency of investigatory proceedings regarding
the business practices of the Company or other direct sales organizations.

     PRODUCT LIABILITY CLAIMS

     The Company, like other manufacturers and distributors of products that are
ingested, faces an inherent risk of exposure to product liability claims. See
"Product Liability."

     GOVERNMENT REGULATION

     The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies and
various agencies of the states, localities, and countries in which the Company's
products are sold. See "Government Regulation."

                                       3
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         The regulations imposed by such entities could, among other things,
require the recall, reformulation or discontinuance of certain products,
additional recordkeeping, warnings, notification procedures and expanded
documentation of the properties of certain products and scientific
substantiation regarding ingredients, product claims, safety or efficacy.
Failure to comply with applicable regulatory requirements can result in
sanctions being imposed on the Company, including warning letters, fines,
product recalls and seizures.

     Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into a market or prevent or
delay the introduction, or require the reformulation, of certain of the
Company's products.

PRODUCTS AND PRODUCT DEVELOPMENT

     The Company offers a comprehensive assortment of vitamin, mineral and
nutritional supplement products, which include vitamins C and E, beta carotene,
magnesium, folic acid, calcium and potassium, as well as various herbs such as
Echinacea, St. John's Wort, Ginko Biloba, Saw Palmetto and Ginseng and various
multivitamin combinations. The Company has the capacity to produce millions of
tablets per day using technologically advanced high-speed manufacturing
equipment. The Company's fully automated packaging lines are capable of
packaging in excess of 200,000 bottles per shift, per day. Intergel, the
Company's soft gelatin encapsulation division, has the capacity to produce in
excess of 2 billion softgel capsules annually.

     The Company's products are marketed under its customers' store brands
(private label) as well as under the Company's own brands. Store brand products
are positioned as high quality, lower priced alternatives to nationally
advertised brands. Branded products, including the Company's flagship brand,
Fields of Nature(R), are targeted at consumers who desire high quality,
recognizable brand names at moderate prices.

     The Company introduces new products and reformulates existing products on
an ongoing basis in response to consumer trends and emerging scientific
evidence. Product concepts are generally developed by the Company's management,
key employees and consultants. The Company also develops and formulates new
products based on customers' requests and responds to changes in existing
national brands by reformulating existing products and redesigning packaging.
The Company's products sold under the Synergy Plus(R) brand are free of sugar,
salt and starch. The Company has also obtained kosher certification for a
substantial portion of the Synergy Plus(R) line. The Company believes that its
kosher certification can help it to achieve increased market share both
domestically and on an international basis.


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MANUFACTURING AND PACKAGING

     The Company owns and leases facilities located in Freehold, New Jersey. Its
manufacturing and packaging facility is equipped with large-volume blending,
tableting and coating equipment, high-speed packaging equipment, including
"cartoning," "stretch carding" and "blister carding" equipment, and testing and
quality control laboratories. In addition, these facilities have been certified
by an independent auditing firm to be in compliance with Good Manufacturing
Practices ("GMP's") as they appear in the United States Pharmacopoeia ("USP").
During the fiscal year ended July 31, 2000, the Company shut down its Portland,
Oregon facilities and those operations were integrated into the Freehold
facility. The Company has an additional leased facility located in British
Columbia, Canada, which is presently utilized for warehousing and distribution
activities relative to its Canadian operations. The Company's softgel operations
are located in leased facilities in Irvington, New Jersey. The Company presently
manufactures substantially all of its products, and the Company believes that
the capacity of its facilities is sufficient to meet its current business needs.

SOFT GELATIN ENCAPSULATION FACILITY

     In recent years, an ever-increasing number of vitamins, herbs,
over-the-counter and cosmetic products have been introduced in, or converted to,
softgels. Factors contributing to the popularity of softgels over tablets
include the fact that softgels are more aesthetically pleasing, odor-free, and
easier to swallow than tablets or hard capsules, and in certain cases provide
superior absorption and stability, content uniformity and more precise dosage,
and generally have longer shelf lives.

     Intergel, the Company's soft gelatin encapsulation division, produces
softgels in various shapes and sizes. Among the new vitamin and nutritional
supplements produced by Intergel in softgel form are Saw Palmetto, Lycopene,
Green Tea, Kava Kava, Ginseng and various multivitamin formulations. The
Intergel facility, which can produce in excess of 2 billion capsules annually,
can accommodate additional production lines which could be installed as the
demand for Intergel's products increases. The Company believes that with these
additional lines, its existing facility can reach production levels approaching
4 billion capsules per year. The Company is able to internally manufacture all
its own softgel requirements, and to supply softgels to a variety of customers,
as well as to custom formulate unique softgel products targeted towards
nutritional and other applications. The Company's strategic business decision to
manufacture softgel products will allow it to better control its own supply,
quality and cost of such products, and pursue the opportunities of marketing
softgel products to third parties.

     Intergel has been granted a license from the Food and Drug Administration
("FDA") for the production of over-the-counter (non-drug) pharmaceutical
products ("OTCs"). Intergel has a multi-product development agreement with
GlaxoSmithkline (formerly Block Drug), a major multinational pharmaceutical
company, to jointly develop softgel encapsulated OTC products and has made
softgels a major focus in all international business development areas. In
addition to a Phazyne line of antiflatulants, Intergel now also provides Nytol
Nighttime Sleep-Aid to GlaxoSmithkline.

     Softgel nutritional and herbal products manufactured by Intergel are
marketed as LiquaFil(R) Softgels under the Company's Fields of Nature(R),
Synergy Plus(R) and private label brands. As new softgel products have been
added to the line, the Company has introduced these products as line extensions
to its existing customers and to new customers who will be carrying this unique
line of softgel nutritional and herbal products. The Company has secured
additional distribution through customers including Costco Wholesale, Eckerd
Drug, Ralphs, Bi-Mart, Phar-Mor, Smart & Final, Price Chopper, American Stores
and Kerr Drug with softgels such as Green Tea, St. John's Wort and Ginseng.

                                       5
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MARKETING AND DISTRIBUTION STRATEGIES

     MASS MARKET RETAIL CHAINS

     In contrast with nationally advertised brand manufacturers, which focus
primarily on the consumer, the Company's strategy is to build relationships with
national and regional drug store, supermarket and mass merchandising retail
chain customers. The Company believes that partnerships with mass retailers,
coupled with new product introductions, gives the Company the ability to react
to changing market conditions more rapidly and does not require large budgets
for national consumer advertising.

     In addition, the Company is working with its customers to develop their
store branded product category management programs. All supply agreements are
reviewed with customers to ensure the development of a comprehensive sales and
marketing program. Since the cost to a retailer of the Company's branded
products and the retailer's private label products are generally lower than that
of advertised national brand products, retail chains are usually able to commit
funds to promote the Company's and their own private label products through the
use of money saving coupons, individualized promotions and advertising (such as
store circulars and newspaper inserts), while still realizing a higher profit
margin than on advertised national brand products. Often, the product itself is
retailed at a lower price than the national brands thereby delivering "better
value" to consumers and providing the retailer with an important marketing tool
in today's competitive retailing environment. Fields of Nature(R) products are
currently positioned below "premium brands" and above store branded products.

     The Company uses the Efficient Consumer Response ("ECR") recommended
processes for evaluating consumer needs and applying them to the various retail
trade avenues of distribution. The Company employs its own direct sales force
which regularly calls on customers to obtain an understanding of each customer's
competitive environment. Then, working in tandem with its sales force, the
Company's marketing department and creative arts group develop customized
marketing programs for customers, including new product introductions,
promotional planning support, market research and packaging design.

     HEALTH FOOD STORES

     Although many vitamins, minerals, and herbals are now marketed at mass
market channels, health and natural food stores remain the strongest single
outlet for specialty supplements and new products. The Company estimates that
since 1996, health and natural food stores have accounted for more than
one-third of total vitamin, mineral and herb product sales. With a low cost of
market entry, many marketers choose to launch products in the health food
segment rather than through the mass market.

     Synergy Plus(R), the Company's health food store brand, is expecting to
capitalize on distribution opportunities created by dynamic changes within the
health food market through new marketing strategies and recent label changes.
The industry has seen several leading brands make the transition into mass
channels thus creating shelf space in the natural products market place.
Additionally, with a leading pharmaceutical company purchasing Solgar Vitamin
and Herb Company, one of the most respected health food store brands of
vitamins, the Company believes that this business may also enter the mass
market. The Company believes that in response to this the health food retailers
may begin to de-emphasize these brands, thereby creating new market
opportunities.

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     The Company believes that changes in the industry along with increased
media focus and attention on supplements will fuel continued growth within the
nutrition market over the next several years. Much of this growth stems from the
continuous stream of new products entering into the marketplace. According to
industry surveys, over 800 new stock keeping units enter the marketplace every
year.

     EXPORT SALES

     The Company has refocused its international sales efforts on several key
locations, products and marketing strategies. Distribution agreements have been
completed for sales in the Middle East, Canada, Mexico, South Africa, Europe and
the Pacific Rim.

INDUSTRY OVERVIEW

     The Company believes that the market for vitamins and other nutritional
supplements will continue to grow as the nation's demographics continue to shift
towards a more senior-aged population, who have a greater tendency to use
vitamins on a regular basis. According to the U.S. Census, the segment of the
U.S. population aged 45 and above will continue to grow, increasing 42% by the
year 2030. The Company believes that as consumers grow older, chronic health
problems will become more of a concern. Most significant among these are cancer,
lack of energy, cardiovascular problems, joint pain and high cholesterol. The
Company believes that more senior-aged consumers will seek alternative
treatments for these health problems, as well as invest in preventative
measures.

     PRIVATE LABEL INDUSTRY

     A major part of the Company's sales consists of store brand (private label)
products. Sales growth of store brand products has outpaced the overall industry
growth as retailers continue to add and expand their store branded segment of
vitamins, supplements and herbs. Consumers continue to play a major role in the
growth of store branded products, as they become more aware that store brand
products offer lower-priced and equal if not better quality alternatives to
nationally advertised brand name products, which may be priced up to 60% higher.
The Company believes that, as herbal supplements become every day items, store
brands will continue to take share away from branded products. Retailers are
also taking a more aggressive approach to their store brands positioning them
against premium brands and adding "Compare to" statements on packaging and in
advertising.

SOURCE AND AVAILABILITY OF RAW MATERIALS

     The Company has developed relationships with its raw material suppliers
that have led to increased efficiencies in operations. Raw material suppliers
are evaluated on price, quality, and on-time delivery. In addition, the Company
has implemented a new Material Requirement Planning ("MRP") system. These steps
have allowed the Company to obtain better raw materials at lower prices and to
remain competitive in the nutritional industry. Although one of the Company's
suppliers individually accounted for approximately 16% of the total purchases in
2001 and 19% in 2000, the Company believes that the materials purchased from
this supplier are readily available from numerous sources and that the loss of
this supplier would not adversely affect its operations. No other supplier
accounts for more than 10% of the Company's raw material purchases.


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MAJOR CUSTOMERS

     The Company's has approximately 700 active customers. The Company's ten
largest customers accounted for 82% of sales during the fiscal year 2001 with
one individual customer, Costco Wholesale accounting for 57% of sales. During
the fiscal year 2000, the Company's ten largest customers accounted for
approximately 83% of sales, with one customer, Costco Wholesale accounting for
47% of sales. A high priority has been placed on efforts to diversify
distribution. Major accounts currently not supplied have been identified and
contacted with marketing and sales programs being produced for presentation to
potential new customers.

QUALITY CONTROL

     The Company's manufacturing operations include modern quality control
laboratories and testing facilities. All raw materials used in production are
initially held in quarantine during which time the Company's laboratory
employees assay the product against the manufacturer's certificate of analysis.
Once cleared, a lot number is assigned, samples are retained and the material is
processed by formulating, mixing and blending, encapsulating or compressing and
where required, by coating operations. Throughout the manufacturing process, the
Quality Control Group conducts "in process" testing procedures. After tablets or
capsules are manufactured, laboratory employees test for weight, purity,
potency, dissolution and stability. When products are ready for bottling, the
Company's automated equipment counts the tablets or capsules, inserts them into
bottles, applies a cap (closure) which includes a tamper-resistant inner seal,
affixes a label and adds a tamper-resistant outer safety seal. All products,
including softgels produced by Intergel, are subject to the Company's quality
control procedures.

COMPETITION

     The market for vitamins and other nutritional supplements is highly
competitive in all of the Company's channels of distribution. For sales to drug
store, supermarket and mass merchandising chains, the Company's Fields of
Nature(R), LiquaFil(R), and Nature's Wonder(R) brands compete with numerous
brands of larger vitamin distributors and manufacturers, such as (i) Nature's
Bounty(R) by NBTY, Inc., (ii) Sundown(R) by Rexall Sundown, Inc., (iii) Your
Life(R) by Leiner Health Products, Inc. and (iv) Nature Made(R) by Pharmavite
Corp. These manufacturers are also the Company's competitors for private label
business. In addition, the Company competes with the more heavily advertised
national brands, which have been marketed by major over-the-counter
manufacturers. The marketplace for private label business is extremely price
sensitive with service levels, quality, innovative packaging, marketing and
promotional programs and uniqueness of products being the key factors
influencing competitiveness.

     There are also numerous companies competing with the Company's Synergy
Plus(R) brand for health food and independent drug store customers in its
geographical markets. As most companies are privately held, the Company is
unable to precisely assess the size of its competitors or where it stands with
respect to sales volume in comparison to its competitors. Currently the
Company's Synergy Plus(R) competes with brands manufactured by our competitors
including the following: (i) Twinlab(R) by Twinlab Corporation; (ii) Solgar(R)
by the Solgar Vitamin and Health division of American Home Products Corporation;
and (iii) Schiff(R) by the Schiff division of Weider Nutrition International,
Inc. Although certain of these competitors are substantially larger than the
Company and have greater financial resources, the Company believes that it
competes favorably with the vitamin and nutritional supplement companies serving
these markets because of our competitive pricing, marketing strategies, quality
of products, kosher certification, special formulation of products, sales
support and its full line of products. The Company also derives a competitive
advantage from being one of the few vertically integrated tablet and softgel
manufacturers, thereby

                                       8
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having the ability to manufacture and package all of its vitamin and nutritional
supplement products. This affords the Company the flexibility to respond rapidly
to the shifting demands of the marketplace.

GOVERNMENT REGULATION

     The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the Food and Drug Administration ("FDA"), the Federal Trade
Commission, the Consumer Product Safety Commission, the United States Department
of Agriculture and the United States Environmental Protection Agency. These
activities are also regulated by various agencies of the states, localities, and
countries in which the Company's products are sold. In addition, the Company
manufactures and markets certain of its products in compliance with the
guidelines promulgated by the USP and other voluntary standard organizations.

     The Dietary Supplemental Health and Education Act ("DSHEA") recognizes the
importance of good nutrition and the availability of safe dietary supplements in
preventive health care. The DSHEA amends the Federal Food, Drug and Cosmetic Act
by defining dietary supplements, which include vitamins, minerals, nutritional
supplements and herbs, as a new category of food, separate from conventional
food. Under the DSHEA, the FDA is generally prohibited from regulating such
dietary supplements as food additives or drugs. It requires the FDA to regulate
dietary supplements so as to guarantee consumer access to beneficial dietary
supplements, allowing truthful and proven claims. Generally, dietary ingredients
that were on the market before October 15, 1994 may be sold without FDA
pre-approval and without notifying the FDA. However, new dietary ingredients
(those not used in dietary supplements marketed before October 15, 1994) require
premarket submission to the FDA of evidence of a history of their safe use, or
other evidence establishing that they are reasonably expected to be safe. There
can be no assurance that the FDA will accept the evidence of safety for any new
dietary ingredient that the Company may decide to use, and the FDA's refusal to
accept such evidence could result in regulation of such dietary ingredients as
food additives, requiring the FDA pre-approval based on newly conducted, costly
safety testing. Also, while the DSHEA authorizes the use of statements of
nutritional support in the labeling of dietary supplements, the FDA is required
to be notified of such statements, and there can be no assurance that the FDA
will not consider particular labeling statements used by the Company to be drug
claims rather than acceptable statements of nutritional support, necessitating
approval of a costly new drug application, or relabeling to delete such
statements.

     The DSHEA also authorizes the FDA to promulgate good manufacturing practice
regulations ("GMP") for dietary supplements, which would require special quality
controls for the manufacture, packaging, storage and distribution of
supplements. Although the final version of the GMP rules has not yet been
issued, the Company has completed significant facility renovations that should
allow the Company to comply with the new regulations, once they are enacted. The
DSHEA further authorizes the FDA to promulgate regulations governing the
labeling of dietary supplements, including claims for supplements pursuant to
recommendations made by the Presidential Commission on Dietary Supplement
Labels. Such rules, which were issued on September 23, 1997, entail specific
requirements relative to the labeling of the Company's dietary supplements. The
rules, which took effect in March 1999, also require additional record keeping
and claim substantiation, reformulation, or discontinuance of certain products,
which required the Company to incur a significant expense.

     The Company's products which are sold in Canada are further subject to
Canadian government regulation under that country's Food and Drug Act and the
regulations thereunder (the "Canadian Act"), which includes regulatory approvals
of applicable products through a drug identification number ("DIN") and general
proprietary number ("GP") by Health Canada. The loss

                                       9
<PAGE>

of a particular DIN or GP would adversely affect the Company's ability to
continue to sell the particular product to which the DIN or GP was assigned.
Material non-compliance with the provisions of the Canadian Act may result in
the loss of a DIN or GP or the seizure and forfeiture of the particular products
which are sold in non-compliance with the Canadian Act.

     In addition, the Company cannot predict whether new legislation or
regulations governing the Company's activities will be enacted by legislative
bodies or promulgated by agencies regulating the Company's activities, or what
the effect of any such legislation or regulations on the Company's business
would be.

TRADEMARKS

     The Company owns trademarks registered with the United States Patent and
Trademark Office and with agencies in certain other major jurisdictions of the
world for its Fields of Nature(R), Rybutol(R), Nature's Wonder(R), Pine Bros(R)
and LiquaFil(R) brands. Federally registered trademarks have a perpetual life,
as long as they are renewed on a timely basis and used properly as trademarks,
subject to the rights of third parties to seek cancellation of the marks. The
Company believes that its registered and unregistered trademarks and other
proprietary rights are valuable assets and believes they have significant value
in the marketing of its products. The Company vigorously protects its trademarks
against infringement.

RESEARCH AND DEVELOPMENT

     The Company does not conduct primary research for the development of new
ingredients. Instead, the Company's research efforts are solely focused on
developing new products in response to market trends and consumer demands. The
Company's staff continually reformulates existing products in response to
changes in nationally advertised brand formulas in order to maintain product
comparability.

     The Company believes that flexibility and innovation with respect to new
products are crucial factors in competing for market share in the field of
nutritional supplements. The Company's tablet and softgel formulation
departments develop high-quality new products on an ongoing basis, capitalizing
on the emerging science relative to nutritional products, as well as shifts in
consumer demand. While the introduction of new products does not entail the
expenditure of significant funds by the Company for scientific research and for
the development of ingredients, considerable time and effort are devoted to
market research activities, product formulation and packaging. There can be no
assurance that the new products we develop (i) will be commercially viable or
successfully marketed; (ii) will obtain regulatory approval; or (iii) will prove
to be safe and effective.

                                       10
<PAGE>

PRODUCT LIABILITY

     The Company, like other manufacturers and distributors of products that are
ingested, faces an inherent risk of exposure to product liability claims.
Accordingly, the Company maintains product liability insurance coverage and
requires each of its suppliers to carry product liability insurance covering the
Company. While management believes that its insurance coverage is adequate,
there can be no assurance that any judgment against the Company will not exceed
liability coverage. A judgment significantly in excess of the amount of
insurance coverage would have a material adverse effect on the Company.

ENVIRONMENTAL LAW COMPLIANCE

     Most of our manufacturing and certain research operations are or will be
affected by federal, state and local environmental laws. We have made, and
intend to continue to make, necessary expenditures for compliance with
applicable laws. While we cannot predict with certainty the future operating
costs for environmental compliance, we do not believe they will have a material
effect on our capital expenditures, earnings or competitive position.

EMPLOYEES

     At July 31, 2001 the Company employed 370 employees, of which 26 were in
sales and marketing, 223 were in manufacturing and packaging, 50 were in quality
control and regulatory compliance departments, 39 were in warehousing and 32
were in executive and administrative positions. The Company believes that it has
a satisfactory relationship with its employees. The Company and its employees
are not currently parties to any collective bargaining agreement.




                                       11
<PAGE>

ITEM 2 DESCRIPTION OF PROPERTY

     The following table sets forth the Company's properties:

<TABLE>
<CAPTION>
                                                                 APPROXIMATE      LEASED OR
LOCATION               TYPE OF FACILITY                          SQUARE FEET        OWNED
--------               ----------------                          -----------        -----
<S>                    <C>                                        <C>              <C>
Freehold, NJ           Manufacturing, Packaging, Warehousing,      160,000          Owned
                       Distribution and Corporate Offices

Freehold, NJ           Warehousing and Distribution                130,000 (1)      Leased

Irvington, NJ          Manufacturing and Administration             35,000          Leased

Irvington, NJ          Warehousing and Distribution                 43,000 (2)      Leased

Springfield, NJ        Warehousing and Distribution                 20,000          Leased

Surrey, British        Warehousing, Distribution and
  Columbia, Canada     Administration                                8,000          Leased
</TABLE>

-----------------

(1) The Company subleases approximately 30,000 square feet of this facility to a
third party.

(2) The Company subleased approximately 21,500 square feet of this facility to a
third party through April 2001. As of April 15, 2001, the landlord did not renew
the Company's lease and the Company is currently leasing 21,500 square feet of
this facility on a month to month basis.

The Company believes that its properties will satisfy its foreseeable needs for
office, manufacturing and warehouse space.


                                       12
<PAGE>

ITEM 3 LEGAL PROCEEDINGS

     L-tryptophan

     In November 1989, the Company halted sales and distribution and initiated a
voluntary recall of one of its products, L-tryptophan. In December 1989, the FDA
determined that there may be an unequivocal epidemiological link between the
ingestion of L-tryptophan and a blood disorder known as eosinophilia myalgia
syndrome and ordered a nationwide recall. The FDA has been unable to determine
the exact cause of the illness and it appears it may be some time before the
causative factor and the pathogenesis of the disease can be determined. To date,
38 cases have been filed against the Company, all of which have been settled,
with all costs covered by the raw material supplier. The Company believes that
its product liability insurance should cover any potential additional
L-tryptophan related claims, subject to applicable policy limits.

     Trade Dress Claims

     The Company designs the packaging of certain of its branded products and
its customers' private label products to communicate to consumers which national
brand product is comparable to the product manufactured by the Company. Although
the Company designs its packaging to avoid infringing any proprietary rights of
national brand marketers, it has from time to time been subject to certain legal
actions regarding infringement. The Company and its legal counsel do not believe
the outcome of these matters will have a material adverse effect on its
financial position or operations.

     Other Actions

     The Company is engaged from time to time in various other legal actions and
governmental claims incident to its business. The Company believes the amount of
liability, if any, from these proceedings will not have a material adverse
impact on the Company's financial position or operations.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.




                                       13
<PAGE>

                                     PART II

ITEM 5 MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     The Company's Common Stock trades on the OTC Bulletin Board under the
symbol "IVCO.OB". The table below presents the quarterly high and low sales
prices for the Company's Common Stock as reported by The Nasdaq SmallCap Market
System through April 20, 2001, and as reported by the OTC Bulletin Board
thereafter.

                                           Common Stock
                                           ------------
                                       High           Low
                                       ----           ---

     Fiscal Year 2000
         First Quarter                $5.88         $3.50
         Second Quarter                5.88          4.75
         Third Quarter                 6.94          3.50
         Fourth Quarter                4.75          2.66

     Fiscal Year 2001
         First Quarter                $3.00         $1.25
         Second Quarter                1.63           .25
         Third Quarter                 1.16           .63
         Fourth Quarter                 .95           .70


     The Company has not declared and does not have any plans to pay any
cash-dividends on its Common Stock in the foreseeable future. The Board of
Directors intends to retain future earnings to finance the growth of the
Company. The payment of future cash dividends will depend on such factors as
earnings levels, dividend restrictions required by lenders, anticipated capital
requirements, the operating and financial conditions of the Company and other
factors deemed relevant by the Board of Directors.

     As of October 12, 2001, there were approximately 60 holders of record of
the Company's Common Stock. The Company believes that there were in excess of
1,100 beneficial holders of our Common Stock as of such date.

     On October 12, 2001, the last reported sales price of our Common Stock on
the OTC Bulletin Board was $1.86 per share.



                                       14
<PAGE>

ITEM 6 SELECTED FINANCIAL DATA

     The following table sets forth income statement and balance sheet data of
the Company, in thousands of dollars (except per share information), for the
periods indicated.

<TABLE>
<CAPTION>
                                                                      Years Ended July 31,
                                             -------------------------------------------------------------
                                                2001         2000         1999         1998        1997
                                             ---------    ---------    ---------    ---------   ---------
<S>                                        <C>          <C>          <C>          <C>         <C>
             OPERATING RESULTS

Net sales                                    $  67,869    $  85,868    $ 107,339    $ 119,775   $ 108,531
Income (loss) from operations                   (5,909)      (4,985)      (8,502)       3,784       4,423
Net income (loss)                               (2,548)       5,074       (7,041)   $   1,147   $   1,346
Net income (loss) per share - Basic          $   (1.22)   $    2.43    $   (3.28)   $    0.54   $    0.63
Net income (loss) per share - Diluted        $   (1.22)   $    2.43    $   (3.28)   $    0.53   $    0.63

                                                2001         2000         1999         1998        1997
                                             ---------    ---------    ---------    ---------   ---------
            FINANCIAL POSITION

Total assets                                 $  51,091    $  60,248    $  65,241    $  81,254   $  68,210
Long term obligations - less
  current portion                               21,344       25,560       31,034       10,588      31,430
Shareholders' equity                            13,029       15,607       10,540       17,760      16,417
</TABLE>


                                       15

<PAGE>

ITEM 7  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained in this Report. (dollars in thousands except as noted or
per share information).

RESULTS OF OPERATIONS

     The following table sets forth income statement data of the Company, as a
percentage of net sales, for the fiscal years indicated.



                                                   Years Ended July 31,
                                                 -------------------------
                                                 2001      2000      1999
                                                 -----     -----     -----

Net sales                                        100.0%    100.0%    100.0%

Cost of sales                                     80.0      74.8      75.6
                                                 -----     -----     -----

Gross profit                                      20.0      25.2      24.4

Selling, general and administrative expenses      28.7      31.0      25.8

Special and unusual charges                         --        --       3.1

Loss on sale of retail subsidiary                   --        --       2.2

Shutdown of manufacturing facility                  --        --       1.2
                                                 -----     -----     -----

 Income  (loss) from operations                   (8.7)     (5.8)     (7.9)

Recovery, price fixing settlement                  5.5      19.0        --

Other expenses-net                                (3.9)     (2.8)     (2.3)
                                                 -----     -----     -----

Income (loss) before income taxes                 (7.1)     10.4     (10.2)

Income tax expense  (benefit)                     (3.3)      4.5      (3.6)
                                                 -----     -----     -----

Net income (loss)                                 (3.8%)     5.9%     (6.6%)
                                                 =====     =====     =====


                                       16
<PAGE>

YEAR ENDED JULY 31, 2001 COMPARED TO THE YEAR ENDED JULY 31, 2000

     Net Sales. Net sales for the year ended July 31, 2001 were $67,869, a
decrease of $17,999 or 21% compared to $85,868 for the year ended July 31, 2000.
This decrease is principally due to: (i) increased price and product competition
from competitors, (ii) a customer's discontinuance of the Fields of Nature(R)
line of vitamins and nutritional supplements, (iii) the Company's discontinuance
of certain Canadian OTC products due to poor profitability, (iv) a one time
allowance to a contract manufacturing customer for a new product introduction
and discontinuance of the old product, and (v) the softness in the overall
market for vitamins, herbs and supplements. Offsetting these sales decreases, to
a lesser extent, were new product introductions.

     Costs and Expenses. Cost of sales for the year ended July 31, 2001 was
$54,269, a decrease of $9,977, or 15.5% as compared to $64,246 for the year
ended July 31, 2000. As a percentage of net sales, cost of sales increased 5.2%
from the preceding year to 80%. The increase in cost of sales percentage over
the prior year is primarily attributable to an increase in the reserve for slow
moving and obsolete inventory of $2,520, and to the underutilization of plant
capacity.

     Selling, general and administrative expenses for the year ended July 31,
2001 were $19,509, a decrease of $7,098 or 26.7% as compared to $26,607 for the
year ended July 31, 2000. The decrease is primarily attributable to decreases
in: (i) customer advertising and promotions, (ii) commissions and brokerage, and
(iii) freight and delivery commensurate with the decrease in sales. Additional
cost savings were achieved through personnel reductions and decreased
consultants and professional fees.

     Recovery, Price Fixing Settlement. Recovery, price fixing settlement for
the year ended July 31, 2001 was $3,752. This amount represents supplemental
amounts due the Company under the Most Favored Nation Clause contained in the
settlement agreements.

     Other Expenses-Net. Other expenses-net increased $290 for the year ended
July 31, 2001. Interest expense increased to $2,724 for fiscal 2001 compared to
$2,589 for fiscal 2000. The increase was primarily due to higher interest rates
in 2001.

     Income Taxes. See "Income Taxes" under Note 2 of our Notes to Consolidated
Financial Statements for reconciliation of the amount of tax computed under
statutory rates to the income tax provision.

YEAR ENDED JULY 31, 2000 COMPARED TO THE YEAR ENDED JULY 31, 1999

     Net Sales. Net sales for the year ended July 31, 2000 were $85,868, a
decrease of $21,471 or 20.0% compared to $107,339 for the year ended July 31,
1999. This decrease was principally related to the cancellation of sales
contracts with several customers which did not meet the Company's gross margin
targets, resulting in lower branded and private label sales approximating
$11,000. Sales of certain vitamins and minerals were down approximately $4,000
as a result of being discontinued at a major account. The current year's sales
were also lower because the prior year included $2,684 in sales by the Vitamin
Specialties business, which was sold in July 1999. In addition, the overall
market for vitamins, herbs and supplements softened during the second half of
the year, leading to lower overall sales.

Costs and Expenses. Cost of sales for the year ended July 31, 2000 was $64,246,
a decrease of $16,943, or 20.9% as compared to $81,189 for the year ended July
31, 1999. As a percentage of net sales, cost of sales decreased .8% from the
preceding year to 74.8%. The decrease in cost of sales was primarily related to
reduced raw material costs at the Freehold, New Jersey plant and minimal

                                       17
<PAGE>

amortization of long-term contracts, which were renegotiated. These decreases
were offset by increased production costs incurred at the Portland packaging
facility, as the plant was being phased out during the early part of the year
and also an increase in the provision for rent at the Portland Oregon
manufacturing facility, due to a revision in the subleasing assumptions for the
facility. Another item offsetting the decrease in cost of sales was an allowance
of $850 established against barter credits of $1,000 obtained early in the year
in exchange for excess inventory items, and which the Company believes may be
unusable due to the financial condition of the barter vendor. In addition, the
prior year included one-time charges related to the Company's restructuring
including charges for the shutdown of the Portland, Oregon facilities, the
implementation of the Enterprise Resource Planning system, capacity under
utilization and label write-off.

     Selling, general and administrative expenses for the year ended July 31,
2000 were $26,607, a decrease of $1,051 or 3.8% as compared to $27,658 for the
year ended July 31, 1999. The fiscal year ended July 31, 1999 included one-time
charges related to the Company's restructuring amounting to $4,673. Without
these charges, selling, general and administrative expenses for the current year
increased $3,622. This increase is primarily related to shifting to higher
promotional costs, simultaneously with a decrease in amortization of contract
costs, resulting from the renegotiations of long-term contracts, in addition to
higher advertising costs and higher freight and delivery costs. These were
offset by decreases in bad debts, sales commissions paid to brokers, and a
decrease in administrative personnel costs due to the shutdown of the Portland
Oregon facility and management changes. In addition, Vitamin Specialties Corp.
was sold at the end of the last fiscal year, reducing selling, general and
administrative expenses during the current year.

     Recovery, Price Fixing Settlement. Recovery, price fixing settlement
represents amounts realized from price fixing settlements with various
suppliers.

     Other Expenses-Net. Other expenses-net decreased $64 for the year ended
July 31, 2000. Interest expense totaled $2,589, which was virtually flat as
compared to the prior year. Although the average amount borrowed was lower,
interest rates were higher.

     Income Taxes. See "Income Taxes" under Note 2 of our Notes to Consolidated
Financial Statements for reconciliation of the amount of tax computed under
statutory rates to the income tax provision.

LIQUIDITY AND CAPITAL RESOURCES

     At July 31, 2001, the Company had working capital of $13,756 compared to
$19,169 at July 31, 2000, a decrease of $5,413 or 28.2%.

     Net cash provided by operating activities amounted to $4,345 for the year
ended July 31, 2001. The increase in cash was primarily the result of a decrease
in inventories of $11,283 , an increase in inventory reserves of $2,573, and
depreciation and amortization of $2,861. Offsetting these increases in cash were
a net loss of $2,548, an increase in accounts receivable of $2,713, and an
increase in current assets of $3,549 which included a receivable from a price
fixing recovery settlement of $3,752.

     During the year the Company spent $162 for additions to property, plant and
equipment.

     Cash used in financing activities for the year was $4,237, consisting of
the excess of borrowing repayments over actual borrowings for the year.

                                       18
<PAGE>

     On October 16, 2000 the Company entered into a loan and security agreement
with Congress, to replace a previously existing credit agreement. The new
agreement matures on October 16, 2003. The Company can borrow up to $25,000
under a revolving credit commitment and $5,500 under a term loan commitment,
subject to borrowing base limitations, as defined in the loan and security
agreement. The agreement requires the Company to maintain minimum tangible net
worth and contains various restrictions customary in such financial
arrangements, including limitations on the payment of cash dividends. The notes
are collateralized by substantially all of the Company's assets. Borrowings
under the revolving credit commitment has provided for interest at either .75%
above First Union Corporation's "prime rate" or at the Company's option, a rate
of 2.75% above the adjusted Eurodollar rate used by the bank. The interest rate
on the term loan was .25% higher than the revolving loan rates outlined above.

     At April 30, 2001 the Company was not in compliance with the minimum
tangible net worth covenant contained in the Company's loan and security
agreement with Congress. On June 13, 2001 the Company entered into an amended
agreement with Congress. Under the amended agreement, Congress waived the event
of default existing as of April 30, 2001, and the rate of interest was increased
to the prime rate plus 3%, increasing to 5% in the event of termination or
non-renewal of the loan, or if an event of default occurs. The amended agreement
also provides for a $500,000 permanent special reserve, an amendment fee of
$50,000, and requires the Company to maintain revised minimum tangible net worth
amounts.

     The Company has been pursuing, among other initiatives; i) obtaining
alternative sources of financing, ii) seeking additional sales opportunities
within its core business, iii) seeking new sales opportunities through
non-traditional channels of distribution, iv) reducing expenses to a level that
would provide the Company with sufficient cash flows to meet its obligations, v)
merger or sale of the Company, and or vi) a combination of any of the foregoing.

     On September 21, 2001, the Company signed a non-binding letter of intent
with Innovations for it to acquire all of the outstanding stock of the Company.
As contemplated by the letter of intent, each shareholder of the Company would
receive from Innovations $2.50 cash for each share of the Company common stock
held by such shareholder, except that certain of the Company's principal
shareholders will receive either cash, restricted shares of common stock of
Innovations or a combination thereof, valued at $2.50 for each share of the
Company's common stock held by such shareholders.

     Innovations is a majority-owned subsidiary of Inverness. Inverness has
agreed to be acquired by Johnson & Johnson. As part of the pending acquisition
by Johnson & Johnson, Inverness plans to restructure its operations so that its
women's health, nutritional supplements and clinical diagnostics businesses are
held by Innovations. Innovations will then be split-off from Inverness as a
separate, publicly-owned company based in Waltham, Massachusetts.

     The acquisition of the Company by Innovations is subject to a number of
conditions, including negotiation of a definitive acquisition agreement,
approval by Innovations' and the Company's boards of directors, approval by the
Company's shareholders, modification of loan agreements with the Company's
principal lender, satisfactory due diligence, and completion of the pending
split-off of Innovations and merger of Inverness with Johnson & Johnson. The
letter of intent is non-binding, and there can be no assurance that the Company
will be able to reach a definitive agreement with Innovations, or that even if
it does enter into a definitive agreement with Innovations, that Innovations
will complete the acquisition of the Company or that it will acquire the Company
on the terms described in the letter of intent.

                                       19
<PAGE>

     Four shareholders of the Company holding approximately 42% of the Company's
outstanding common stock have entered into voting agreements with Innovations.
The voting agreements require these shareholders to vote all of the shares of
the Company common stock they own in favor of the acquisition of the Company by
Innovations and against any competing proposal. The voting agreements expire on
January 19, 2002 if the Company and Innovations have not entered into a
definitive acquisition agreement by that date.

     Although there can be no assurances that the Company will be able to
achieve any of the foregoing initiatives, the financial statements in this
Report 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.

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company's principal financial instrument is long-term notes payable
under a secured revolving loan and security agreement. The Company is affected
by market risk exposure primarily through the effect of changes in interest
rates on amounts payable by the Company under this loan and security agreement.
Changes in these factors cause fluctuations in the Company's net income and cash
flows. The Company does not utilize derivative financial instruments to hedge
against changes in interest rates or for any other purpose.

FORWARD LOOKING STATEMENTS

     This Report, including the Description of Business and Management's
Discussion and Analysis, contains certain "forward-looking statements", within
the meaning of Section 21E of the Securities Exchange Act of 1934, which
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning industry performance, the Company's operations,
performance, financial condition, growth and acquisition strategies, margins and
growth in sales of the Company's products. For this purpose, any statements
contained in this Report that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"intend", "could", "should", "estimate" or "continue" or the negative or other
variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the Company's control, and
actual results may differ materially depending on a variety of important
factors, including beneficial or adverse trends in the domestic market for
vitamins and nutritional supplements, the gain or loss of significant customers
for the Company's products, the competitive environment in the vitamin and
nutritional supplement industry, and the enactment or promulgation of new
government legislation or regulation, including but not limited to, those risks
and uncertainties set forth under the heading "Factors That Could Affect Our
Future Results" of Part I of this Report, as well as other risks and
uncertainties that may be detailed from time to time in the Company's reports
filed with the Securities and Exchange Commission.


                                       20
<PAGE>

ITEM 8            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

Independent Auditors' Reports.......................................F-1


Consolidated Balance Sheets
    As of July 31, 2001 and 2000....................................F-2


Consolidated Statements of Operations for the Years Ended
    July 31, 2001, 2000 and 1999....................................F-3


Consolidated Statements of Cash Flows for the Years Ended
    July 31, 2001, 2000 and 1999....................................F-4 to F-5


Consolidated Statements of Changes in Shareholders'
    Equity for the Years Ended July 31, 1999, 2000 and 2001.........F-6


Notes to Consolidated Financial Statements..........................F-7 to F-32

ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information called for by Item 10 will be set forth under the heading
"Election of Directors" in the Company's Proxy Statement for the annual meeting
of shareholders to be held in January 2002 (the "2001 Proxy Statement"), which
is incorporated herein by this reference.

ITEM 11 EXECUTIVE COMPENSATION

     Information called for by Item 11 will be set forth under the heading
"Executive Compensation" in the 2001 Proxy Statement, which is incorporated
herein by this reference.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information called for by Item 12 will be set forth under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the 2001
Proxy Statement, which is incorporated herein by this reference.

                                       21
<PAGE>

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information called for by Item 13 will be set forth under the heading
"Certain Relationships and Related Transactions" in the 2001 Proxy Statement,
which is incorporated herein by this reference.

                                     PART IV

ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)  DOCUMENTS INCLUDED AS PART OF THIS REPORT

     (1) FINANCIAL STATEMENTS

         The information required by this item is included in Item 8 of Part II
         of this Form 10-K under the heading "Financial Statements and
         Supplementary Data"

     (2) FINANCIAL STATEMENT SCHEDULES

         Report of Independent Accountants on Financial Statement Schedule for
         the three years in the period ended July 31, 2001 (Page F-1)

         Schedule II - Valuation and Qualifying Accounts (Page S-1)

         All other schedules have been omitted because they are not required,
         are inapplicable, or the information is otherwise set forth in the
         Financial Statements or Notes thereto.

     (3) EXHIBITS

 Exhibit       Description of
 Number        Exhibit

  3.1          Amendment to Certificate of Incorporation of IVC Industries, Inc.
               (9)

  3.2          Restated Certificate of Incorporation of IVC Industries, Inc. (9)

  3.3          Amended and Restated By-laws of IVC Industries, Inc. (1)

  4.1          Common Stock Specimen (2)

  4.2          Rights Agreement, dated as of May 15, 2000, between IVC
               Industries, Inc, and American Stock Transfer and Trust Company,
               as Rights Agent and all exhibits attached thereto (the "Rights
               Agreement") (3)

  4.3          First Amendment to Rights Agreement, dated as of February 1,
               2001, between IVC Industries, Inc, and American Stock Transfer
               and Trust Company, as Rights Agent.

  4.4          Second Amendment to Rights Agreement, dated as of September 21,
               2001, between IVC Industries, Inc, and American Stock Transfer
               and Trust Company, as Rights Agent.


                                       22
<PAGE>

  10.1         Loan and Security Agreement, dated as of October 16, 2000,
               between IVC Industries, Inc., and Congress Financial Corporation
               (9)

  10.2         Amended Loan and Security Agreement, dated as of June 13, 2001,
               between IVC Industries, Inc., and Congress Financial
               Corporation.(10)

  10.3         Agreement, dated as of June 2, 1998, by and between IVC
               Industries, Inc. and The Navesink Group (4)

  10.4         Lease Agreement, dated as of July 28, 1998, between The Navesink
               Group and IVC Industries, Inc. (4)

  10.5         Settlement Agreement, dated September 17, 1999 with Hoffman
               La-Roche Inc. and Roche Vitamins Inc. (5)

  10.6         Employment Agreement, dated as of April 28, 1995, with E. Joseph
               Edell (6)*

  10.7         Amendment to Employment Agreement, dated as of February 1, 1998,
               with E. Joseph Edell (4)*

  10.8         International Vitamin Corporation 1995 Stock Option Plan as
               amended through January 2000 (7)*

  10.9         Non-Employee Directors' Stock Option Plan as amended through June
               2001*

  10.10        Employment Agreement, dated as of April 12, 2000, with Michael
               Durso (8)*

  10.11        Employment Agreement, dated as of April 12, 2000, with William
               Lederman (8)*

  10.12        Employment Agreement, dated as of August 1, 2000, with Thomas
               Bocchino (9)*

  11           Earnings Per Share Computation

  21           Subsidiaries of IVC Industries, Inc.

  23           Consent of Amper Politziner & Mattia P.A., independent
               accountants.

*Management compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.

FOOT NOTES
--------------------

  (1)  Incorporated herein by reference to the Current Report on Form 8-K filed
       on May 15, 1996, as amended on August 9, 1996.

  (2)  Incorporated herein by reference to the Annual Report on Form 10-K for
       the year ended July 31, 1999.


                                       23
<PAGE>

  (3)  Incorporated herein by reference to the Registration Statement on Form
       8-A filed on May 19, 2000.

  (4)  Incorporated herein by reference to the Annual Report on Form 10-K filed
       for the year ended July 31, 1998.

  (5)  Incorporated herein by reference to the Current Report on Form 8-K filed
       on September 24, 1999.

  (6)  Incorporated herein by reference to the Quarterly Report on Form 10-QSB
       filed for the quarter ended April 30, 1995.

  (7)  Incorporated herein by reference to the Registration Statement on Form
       S-8 filed on January 11, 2000.

  (8)  Incorporated herein by reference to the Quarterly Report on Form 10-Q for
       the quarter ended April 30, 2000.

  (9)  Incorporated herein by reference to the Annual Report on Form 10-K for
       the year ended July 31, 2000.

  (10) Incorporated herein by reference to the Quarterly Report on Form 10-Q for
       the quarter ended April 30, 2001.

(B)  REPORTS ON FORM 8-K

     The Company did not file any reports on Form 8-K during the fourth quarter
ended July 31, 2001.

                                       24
<PAGE>


                                   SIGNATURES

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

                                         IVC INDUSTRIES, INC.

Date:  October 29, 2001                  By:  /s/  E. Joseph Edell
     ---------------------                    --------------------------------
                                              E. Joseph Edell
                                              Chairman of the Board
                                              Chief Executive Officer
                                              and President

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

         Signature                   Title                          Date
         ---------                   -----                          ----

/s/ E. Joseph Edell            Chairman of the Board of        October 29, 2001
--------------------------     Directors Chief Executive
E. Joseph Edell                Officer and President


/s/  Thomas E. Bocchino        Vice President, Chief           October 29, 2001
--------------------------     Financial Officer and
Thomas E. Bocchino             Secretary


/s/  Andrew M. Pinkowski       Director                        October 29, 2001
--------------------------
Andrew M. Pinkowski


/s/  William Hennrich          Director                        October 29, 2001
--------------------------
William Hennrich


/s/  David Popofsky            Director                        October 29, 2001
--------------------------
David Popofsky

                                       25
<PAGE>


/s/ Elliott Weinberg           Director                        October 29, 2001
--------------------------
Elliott Weinberg

/s/ Michael G. Seaman          Director                        October 29, 2001
--------------------------
Michael G. Seaman

/s/ Jeffrey. Edell             Director                        October 29, 2001
--------------------------
Jeffrey Edell

/s/ Erwin Lehr                 Director                        October 29, 2001
--------------------------
Erwin Lehr

/s/ Samuel Potenza             Director                        October 29, 2001
--------------------------
Samuel Potenza



                                       26
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
IVC Industries, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of IVC Industries,
Inc. and Subsidiaries as of July 31, 2001 and 2000 and the related consolidated
statements of operations, cash flows and shareholders' equity for each of the
years ended July 31, 2001, 2000 and 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of IVC Industries, Inc. and
Subsidiaries at July 31, 2001 and 2000, and the results of their operations and
their cash flows for each of the three years in the period ended July 31, 2001
in conformity with accounting principles generally accepted in the United States
of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has continuing losses from operations that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. 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 connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Item 14. In our opinion, the
financial schedule, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.

                                      /s/ AMPER POLITZINER & MATTIA P.A.

October 12, 2001
Edison, New Jersey

                  See notes to consolidated financial statements.

                                      F-1
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                                                    July 31,
                                                                    ------------------------------------
       ASSETS                                                           2001                   2000
                                                                    -------------          -------------
<S>                                                                 <C>                    <C>
Current assets:
    Cash and cash equivalents                                       $         530          $         648
    Accounts receivable, net                                                8,994                  6,330
    Inventories                                                            13,277                 27,133
    Other receivable, price fixing settlement                               3,752                   --
    Deferred taxes                                                          2,241                  1,751
    Prepaid expenses                                                          191                    252
    Refundable income taxes                                                 1,101                  1,123
    Other current assets                                                     --                      120
                                                                    -------------          -------------
      Total current assets                                                 30,086                 37,357

Property, plant and equipment,  net                                        18,009                 20,578

Due from related parties                                                      524                    493
Deferred taxes                                                              1,591                  1,163
Other assets                                                                  585                    657
                                                                    -------------          -------------
Total assets                                                        $      50,795          $      60,248
                                                                    =============          =============

      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Current portion of long-term debt                               $       2,290          $       2,365
    Current portion of capital lease payable                                  284                    230
    Current portion of deferred gain on building sale                         119                    112
    Accounts payable                                                        9,088                 10,039
    Accrued expenses                                                        3,847                  5,351
    Income taxes payable                                                       20                     91
                                                                    -------------          -------------
      Total current liabilities                                            15,648                 18,188

Long-term debt - less current portion                                      18,721                 22,653
Capital lease obligation                                                    2,623                  2,907
Deferred gain on building sale                                                774                    893
                                                                    -------------          -------------
      Total liabilities                                                    37,766                 44,641
                                                                    -------------          -------------
Shareholders' equity:
    Preferred stock, $.01 par value, 250,000
      shares authorized, none issued                                         --                     --
    Common stock, $.08 par value, 4,500,000 shares authorized;
      issued and outstanding 2,103,623 as of July 31, 2001 and
      2,088,092 as of July 31, 2000, respectively                             168                    167
    Additional paid-in capital                                             11,586                 11,553
    Foreign currency translation adjustment                                  (327)                  (263)
    Retained earnings                                                       1,602                  4,150
                                                                    -------------          -------------
      Total shareholders' equity                                           13,029                 15,607
                                                                    -------------          -------------

Total liabilities and shareholders' equity                          $      50,795          $      60,248
                                                                    =============          =============
</TABLE>

                  See notes to consolidated financial statements.

                                      F-2
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                     FOR THE YEARS ENDED JULY 31,
                                               -----------------------------------------
                                                   2001           2000          1999
                                               -----------    -----------    -----------
<S>                                            <C>            <C>            <C>
Net sales                                      $    67,869    $    85,868    $   107,339

Cost of sales                                       54,269         64,246         81,189
                                               -----------    -----------    -----------

Gross profit                                        13,600         21,622         26,150

Selling, general and administrative expenses        19,509         26,607         27,658

Special and unusual charges                           --             --            3,360

Loss on sale of retail subsidiary                     --             --            2,343

Shutdown of manufacturing facility                    --             --            1,291
                                               -----------    -----------    -----------

Income (loss) from operations                       (5,909)        (4,985)        (8,502)

Recovery, price fixing settlement                    3,752         16,305           --

Other expenses, net                                  2,633          2,365          2,429
                                               -----------    -----------    -----------

Income (loss)  before income taxes                  (4,790)         8,955        (10,931)

Income tax expense (benefit)                        (2,242)         3,881         (3,890)
                                               -----------    -----------    -----------

Net income (loss)                              $    (2,548)   $     5,074    $    (7,041)
                                               ===========    ===========    ===========


Net income (loss) per share - basic            $     (1.22)   $      2.43    $     (3.28)
                                               ===========    ===========    ===========

Net income (loss) per share - diluted          $     (1.22)   $      2.43    $     (3.28)
                                               ===========    ===========    ===========


Weighted average shares - basic                  2,096,195      2,088,092      2,148,143

Weighted average shares - diluted                2,096,348      2,090,506      2,148,909
</TABLE>

                 See notes to consolidated financial statements.

                                      F-3
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                                                     FOR THE YEARS ENDED JULY 31,
                                                                          ---------------------------------------------------
                                                                               2001               2000              1999
                                                                          --------------    ---------------    --------------
<S>                                                                       <C>               <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                     $      (2,548)    $        5,074     $      (7,041)
                                                                          --------------    ---------------    --------------
    Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
      Depreciation and amortization                                               2,882              2,689             2,370
      Provision for bad debts                                                        49                100               597
      Provision for excess and obsolete inventory                                 2,573                391                75
      Deferred income taxes provision (benefit)                                    (918)             2,330            (3,216)
      Stock options issued to non-employee directors                                 34                 54               138
      (Gain) loss on sale of assets                                              -                    (172)            2,343
      Deferred gain on sale of assets                                              (112)              (104)           -
      Changes in assets - (increase) decrease:
        Accounts receivable                                                      (2,713)               866             3,832
        Inventories                                                              11,283               (150)            8,706
        Prepaid expenses and other current assets                                (3,549)             1,776               895
        Other assets                                                               (110)               780               801
      Changes in liabilities - increase (decrease):
        Accounts payable and accrued expenses                                    (2,455)            (4,291)           (9,326)
        Income taxes payable                                                        (71)                91            -
                                                                          --------------    ---------------    --------------
           Total adjustments                                                      6,893              4,360             7,215
                                                                          --------------    ---------------    --------------
        Net cash provided by operating activities                                 4,345              9,434               174
                                                                          --------------    ---------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to property, plant and equipment                                     (162)            (3,549)           (1,614)
    Proceeds from sale of assets                                                 -                     293            -
    Retirement of common stock                                                   -                  -                   (317)
                                                                          --------------    ---------------    --------------
        Net cash provided by (used in) investing activities                        (162)            (3,256)           (1,931)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on borrowings                                                      (20,560)           (10,731)           (8,162)
    Proceeds from borrowings                                                     16,553              5,154             8,737
    Principal payments on capital lease                                            (230)              (179)             (135)
                                                                          --------------    ---------------    --------------
        Net cash provided by (used in) financing activities                      (4,237)            (5,756)              440
                                                                          --------------    ---------------    --------------

    Foreign currency translation adjustment                                         (64)               (61)           -
                                                                          --------------    ---------------    --------------

NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                              (118)               361            (1,317)
CASH AND CASH EQUIVALENTS - BEGINNING                                               648                287             1,604
                                                                          --------------    ---------------    --------------
CASH AND CASH EQUIVALENTS - ENDING                                        $         530     $          648     $         287
                                                                          ==============    ===============    ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
    Interest                                                              $       2,844     $        2,589     $       2,466
                                                                          ==============    ===============    ==============
    Taxes                                                                 $         334     $          686     $         682
                                                                          ==============    ===============    ==============
</TABLE>

                 See notes to consolidated financial statements.

                                      F-4
<PAGE>



Non Cash Financing and Investing Activities
-------------------------------------------

During the year ended July 31, 1999, the Company sold a retail subsidiary
(consisting of fixed assets, inventories, goodwill, accounts payable and accrued
expenses) in exchange for a $1,182 note receivable. The Company incurred a net
loss on this sale of $2,343.






                  See notes to consolidated financial statements.

                                      F-5
<PAGE>



                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                FOR THE YEARS ENDED JULY 31, 1998, 1999 AND 2000
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                                                  FOREIGN
                                 COMMON                 ADDITIONAL  RETAINED      CURRENCY
                                 STOCK        COMMON    PAID-IN     EARNINGS      TRANSLATION
                                (SHARES)      STOCK     CAPITAL     (DEFICIT)     ADJUSTMENT       TOTAL
                                ---------    -------    --------    ----------    ----------    ----------
<S>                           <C>          <C>        <C>         <C>           <C>           <C>
BALANCE - JULY 31, 1998         2,151,469    $   172    $ 11,673    $    6,117    $     (202)   $   17,760

Shares retired                    (63,377)        (5)       (312)         --            --            (317)

Issuance of options to
   non-employe Directors             --         --           138          --            --             138

Net (loss)                           --         --          --          (7,041)         --          (7,041)

Foreign currency translation
   adjustment                        --         --          --            --            --            --
                                ---------    -------    --------    ----------    ----------    ----------

BALANCE - JULY 31, 1999         2,088,092    $   167    $ 11,499    $   (924)     $     (202)   $   10,540

Issuance of options to
   non-employee Directors            --         --            54          --            --              54

Net income                           --         --          --           5,074          --           5,074

Foreign currency translation
   adjustment                        --         --          --            --             (61)          (61)
                                ---------    -------    --------    ----------    ----------    ----------

BALANCE - JULY 31, 2000         2,088,092    $   167    $ 11,553    $    4,150    $     (263)   $   15,607

Issuance of options to
   non-employee Directors            --         --            16          --            --              16

Issuance of shares to
   non-employee Directors          15,531          1          17          --            --              18

Net (loss)                           --         --          --          (2,548)         --          (2,548)

Foreign currency translation
   adjustment                        --         --          --            --             (64)          (64)
                                ---------    -------    --------    ----------    ----------    ----------

BALANCE - JULY 31, 2001         2,103,623    $   168    $ 11,586    $    1,602    $     (327)   $   13,029
                                =========    =======    ========    ==========    ==========    ==========
</TABLE>


                  See notes to consolidated financial statements.

                                      F-6
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 1 - Liquidity

     For the year ended July 31, 2001, the Company continued to experience
     losses from operations. These losses are attributable to an overall
     softness in the market for herbal and nutritional products, resulting in
     reduced sales levels for the Company.

     At April 30, 2001 the Company was not in compliance with the minimum
     tangible net worth covenant contained in the Company's loan and security
     agreement with Congress Financial Corporation ("Congress"), a subsidiary of
     First Union Corporation. On June 13, 2001 the Company entered into an
     amended loan and security agreement with Congress. Under the amended
     agreement, Congress waived the event of default existing as of April 30,
     2001, and the rate of interest was increased from rates ranging from the
     prime rate plus .75% - 1% to the prime rate plus 3%, increasing to 5% in
     the event of termination or non-renewal of the loan, or if an event of
     default occurs. The amended agreement also provides for a $500,000
     permanent special reserve, an amendment fee of $50,000, and requires the
     Company to maintain revised minimum tangible net worth amounts.

     The Company is pursuing, among other initiatives; i) obtaining alternative
     sources of financing, ii) seeking additional sales opportunities within its
     core business, iii) seeking new sales opportunities through non-traditional
     channels of distribution, iv) reducing expenses to a level that would
     provide the Company with sufficient cash flows to meet its obligations, v)
     merger or sale of the Company, and/or vi) a combination of any of the
     foregoing.

     As discussed in Note 18, on September 21 the Company signed a non-binding
     letter of intent with Inverness Medical Innovations, Inc. ("Innovations"),
     for Innovations to buy all of the outstanding stock of the Company.

     Although there can be no assurances that the Company will be able to
     achieve any of the foregoing initiatives, the financial statements included
     in this Report 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.

Note 2  -  Organization and Summary of Significant Accounting Policies:

     Organization
     ------------

     The Company is engaged in a single business segment - manufacturing,
     packaging and worldwide sales and distribution of vitamins and nutritional
     supplements through drug stores, club stores, supermarkets and mass
     merchandising chains, health food and independent drug stores. Its products
     are distributed under the Fields of Nature(R), LiquaFil(R), Rybutol(R),
     Nature's Wonder(R), Synergy Plus(R), Nature's Blend(R) and Pine Bros(R).
     brands, as well as under the private labels of its retail chain store
     customers. Total sales during 2001 consist of domestic sales of 86%,
     Canadian sales of 11% and export sales of 3%.

                                      F-7
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 2  -  Summary of Significant Accounting Policies - (continued):

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

     The accompanying financial statements include the accounts of the Company
     and its wholly owned subsidiaries, Hall Laboratories Ltd. ("Hall") and
     Vitamin Specialties Corp. ("VSC") since the date of acquisition, June 13,
     1997, accounted for as a purchase (see "Business Combinations") until date
     of disposal on July 13, 1999. All material intercompany transactions and
     balances have been eliminated.

     Foreign Currency Translation
     ----------------------------

     Assets and liabilities of Hall, operating in Canada, are translated into
     U.S. dollars using the exchange rates in effect at the balance sheet date.
     Results of operations are translated using the average exchange rates
     prevailing throughout the period. The effects of exchange rate fluctuations
     on translating foreign currency assets and liabilities into U.S. dollars
     are included in shareholders' equity.

     Use of Estimates
     ----------------

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

     Concentration of Credit Risk
     ----------------------------

     Financial instruments, which potentially subject the Company to
     concentrations of credit risk, consist principally of trade receivables.
     The Company sells its products to a geographically diverse customer base in
     the drug store, supermarket and discount chain industries. The Company
     performs ongoing credit evaluations of its customers and maintains reserves
     for potential losses.

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

     The Company considers all highly liquid debt instruments purchased with a
     maturity of three months or less to be cash equivalents. Cash and cash
     equivalents includes restricted cash of $354 and $480 in 2001 and 2000,
     respectively, representing deposits held by trustees in connection with
     payments for the current portion of long-term debt and interest thereon.
     Deposits in banks may exceed the amount of insurance provided on such
     deposits. The Company performs reviews of the credit worthiness of its
     depository banks. The Company has not experienced any losses on its
     deposits of cash and cash equivalents.

                                      F-8
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 2  -  Summary of Significant Accounting Policies - (continued):

     Accounts Receivable
     -------------------

     Accounts receivable are stated at their net values. Included in net
     accounts receivable is an allowance for doubtful accounts. At July 31, 2001
     and 2000, the allowance for doubtful accounts was $204 and $431
     respectively.

     Fair Values of Financial Instruments
     ------------------------------------

     Fair values of cash and cash equivalents, accounts receivable, accounts
     payable and short-term borrowings approximate cost due to the short period
     of time to maturity. Fair values of long-term debt, which have been
     determined based on borrowing rates currently available to the Company for
     loans with similar terms or maturity, approximate the carrying amounts in
     the consolidated financial statements.

     Inventories
     -----------

     Inventories are stated at the lower of cost ("First In, First Out") or
     market.

     Property, Plant and Equipment
     -----------------------------

     Property, Plant and Equipment is stated at cost, less accumulated
     depreciation. Depreciation is provided on accelerated and straight-line
     methods over the estimated useful lives of the respective assets.
     Maintenance and repairs are charged to expense as incurred; major renewals
     and betterments are capitalized. When property and equipment is sold or
     retired, the related cost and accumulated depreciation are removed from the
     accounts and any gain or loss is included in the results of operations.

     Goodwill
     --------

     Goodwill represents the excess of purchase price over the fair value of
     identifiable net assets acquired. Goodwill was amortized on a straight-line
     basis over 10 years and was written off in conjunction with the sale of VSC
     in 1999.

     Other Assets
     ------------

     Other assets include trademarks, security deposits, a covenant not to
     compete and deferred financing costs. The covenant not to compete is being
     amortized over the period of expected benefit, and the deferred financing
     costs are being amortized over the life of the related financing
     agreements. Prepaid vendor credits of $217, determined to be worthless,
     were written off in the year ended July 31, 2001.


                                      F-9
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 2  -  Summary of Significant Accounting Policies - (continued):

     Intangible Assets
     -----------------

     The Company periodically reviews its intangible assets to assess
     recoverability and a charge will be recognized in the consolidated
     statement of operations if a permanent impairment is determined to have
     occurred. Recoverability of intangibles is determined based on discounted
     future operating cash flows from the related business unit or activity. The
     amount of impairment, if any, would be measured based on discounted future
     operating cash flows using a discount rate reflecting the Company's average
     cost of funds. The assessment of the recoverability of intangible assets
     will be affected if estimated future operating cash flows are not achieved.
     The Company does not believe that any impairment has occurred as of July
     31, 2001 and 2000.

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

     Revenues are recognized when a product is shipped. Such revenues are
     recorded net of estimated sales returns, discounts and allowances. Staff
     Accounting bulletin No. 101, "Revenue Recognition", has been implemented
     with no significant impact on the financial statements.

     Recoverability of Long-Lived Assets
     -----------------------------------

     The Company reviews for impairment of long-lived assets and certain
     intangibles whenever events or changes in circumstances dictate that the
     carrying amount of an asset may not be recoverable. Recoverability is
     analyzed at the lowest level at which undiscounted net cash flows can be
     directly attributable to long-lived assets. Recoverability of long-lived
     assets could be affected by the outcome of the uncertainty discussed in
     Note 1.

     Stock-Based Compensation
     ------------------------

     Statement of Financial Accounting Standards No.123, "Accounting for Stock
     Based Compensation" ("SFAS 123") allows a company to adopt a fair value
     based method of accounting for its stock-based compensation plans or
     continue to follow the intrinsic value method of accounting prescribed by
     Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
     Issued to Employees" ("APB 25"). The Company accounts for stock-based
     compensation in accordance with the provisions of APB 25, and complies with
     the disclosure provisions of SFAS 123. Under APB 25, compensation cost for
     stock options is measured as the excess, if any, of the quoted market price
     of the Company's stock at the date of the grant over the amount an employee
     must pay to acquire the stock. Financial Accounting Board Interpretation
     No. 44, "Accounting for Certain Transactions Involving Stock Compensation -
     an interpretation of APB No. 25," has been adopted and did not have a
     material affect on the financial statements.

     The Company accounts for stock issued to non-employees in accordance with
     the provisions of SFAS 123 and the Emerging Issues Task Force ("EITF") The
     Financial Accounts Standard Board ("FASB") Issue No. 96-18, "Accounting for
     Equity Instruments that are Issued to other than Employees for Acquiring,
     or in Conjunction with Selling Goods or Services."


                                      F-10
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 2  -  Summary of Significant Accounting Policies - (continued):

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

     The Company uses the liability method of accounting for income taxes. The
     liability method measures deferred income taxes by applying enacted
     statutory rates in effect at the balance sheet date to the differences
     between the tax bases of assets and liabilities and their reported amounts
     in the financial statements. The resulting deferred tax asset or liability
     is adjusted to reflect changes in tax laws as they occur.

     Net Income Per Share
     --------------------

     Basic earnings per share is computed by dividing income available to common
     shareholders by the weighted-average number of common shares outstanding
     during the period. Diluted earnings per share is computed by dividing
     income available to common shareholders by the weighted-average number of
     common shares outstanding during the period increased to include the number
     of additional common shares that would have been outstanding if the
     dilutive potential common shares had been issued.

     Comprehensive Income
     --------------------

     Comprehensive income is the total of net income and all other non-owner
     changes in equity and is not material.

     Shipping and Handling Fees and Costs
     ------------------------------------

     The Company classifies shipping and handling costs as marketing, selling
     and distribution expenses in the accompanying consolidated statement of
     operations. Shipping and handling expenses for the years ended July 31,
     2001, 2000 and 1999 were $ 3,356, $4,852 and $4,875, respectively.

     Advertising Costs
     -----------------

     Advertising and promotional costs are expensed as incurred and are included
     in selling, general and administrative expenses. Such expense for the years
     ended July 31, 2001, 2000 and 1999 were $7,057, $9,300 and $7,500,
     respectively.


                                      F-11
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 2  -  Summary of Significant Accounting Policies - (continued):

     New Accounting Pronouncements
     -----------------------------

     On June 29, 2001, the FASB issued Statements of Financial Accounting
     Standards No. 141 "Business Combinations" "SFAS 141" and No. 142 "Goodwill
     and Other Intangible Assets" "SFAS 142."

     SFAS 141 supercedes ABP Opinion No. 16, "Business Combinations", and
     eliminates the pooling-of-interests method of accounting for business
     combinations, thus requiring all business combinations be accounted for
     using the purchase method. In addition, in applying the purchase method,
     SFAS 141 changes the criteria for recognizing intangible assets apart from
     goodwill and states the following criteria should be considered in
     determining the recognition of the intangible assets: (1) the intangible
     asset arises from contractual or other legal rights, or (2) the intangible
     asset is separable or dividable from the acquired entity and capable of
     being sold, transferred, licensed, rented, or exchanged. The requirements
     of SFAS 141 are effective for all business combinations completed after
     June 30, 2001.

     SFAS 142 supercedes APB Opinion No. 17, "Intangible Assets", and requires
     goodwill and other intangible assets that have an indefinite useful life to
     no longer be amortized; however, these assets must be reviewed at least
     annually for impairment. Application of SFAS 142 is required immediately
     for business combinations completed after June 30, 2001.

     In August 2001, the FASB issued Statement of Financial Accounting Standards
     No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS
     143 requires entities to record the fair value of a liability for an asset
     retirement obligation in the period in which it is incurred. SFAS 143 is
     effective for fiscal years beginning after June 15, 2002. The Company
     believes that SFAS 143 will not have an effect on the Company's financial
     statements.

     In October 2001, the FASB issued Statement of Financial Accounting
     Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
     Assets" ("SFAS 144"), that replaces Statement of Financial Accounting
     Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
     for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The primary
     objectives of this project were to develop one accounting model, based on
     the framework established in SFAS 121, for long-lived assets to be disposed
     of by sale and to address significant implementation issues. The accounting
     model for long-lived assets to be disposed of by sale applies to all
     long-lived assets, including discontinued operations, and replaces the
     provisions of APB Opinion No. 30 "Reporting Results of Operations-Reporting
     the Effects of Disposal of a Segment of a Business", for the disposal of
     segments of a business. SFAS 144 requires that those long-lived assets be
     measured at the lower of carrying amount or fair value less cost to sell,
     whether reported in continuing operations or in discontinued operations.
     Therefore, discontinued operations will no longer be measured at net
     realizable value or include amounts for operating losses that have not yet
     occurred. The provisions of SFAS 144 are effective for financial statements
     issued for fiscal years beginning after December 15, 2001. The Company is
     currently evaluating the impact, which SFAS 144 may have on the Company.

                                      F-12
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 2  -  Summary of Significant Accounting Policies - (continued):

     The EITF has issued EITF 00-25, "Vendor Income Statement Characterization
     of Consideration from a Vendor to a Retailer", which is effective for
     fiscal quarters beginning after December 15, 2001. The consensus of the
     EITF is that consideration paid by a vendor to a retailer, such as slotting
     fees and cooperative advertising, should be classified as a reduction in
     revenue in the vendor's income statement rather than as an operating
     expense, unless certain criteria are met. The Company does not believe that
     this issuance will have any impact on the classifications in its
     presentation of the accompanying consolidated statement of operations.

     In June 1998, the FASB issued Statement of Financial Accounting Standards
     No. 133, "Accounting for Derivative Instruments and Hedging Activities"
     ("SFAS 133"). As amended by SFAS No. 138, SFAS No. 133 is effective for all
     fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No.
     133 establishes accounting and reporting standards for derivative
     instruments, including certain derivative instruments embedded in other
     contracts, and for hedging activities. The Company is currently evaluating
     the impact that the adoption of SFAS 133 will have on its financial
     position and results of operations.

     Reclassifications
     -----------------

     Certain amounts in the 2000 and 1999 statements have been reclassified to
     conform to the 2001 presentation.



                                      F-13
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 3  - Vitamin Specialties Disposition:

     On July 13, 1999, the Company completed the sale of its VSC subsidiary. VSC
     was engaged, among other things, in retail sales through 16 health
     food/vitamin stores and by mail order of vitamins and nutritional
     supplements.

     The selling price for all of the issued and outstanding shares of VSC in
     the aggregate was $1,800, which will be paid in monthly installments equal
     to 5% of VSC's gross sales until such time as the aggregate payments total
     $1,800; provided, however, that for each of the first 36 months following
     the closing, the buyer must pay to the Company the greater of $10 or 5% of
     VSC's gross sales. The amount in excess of the monthly minimum will be
     recognized when received. In addition the $1,800 selling price included
     inventory at cost, offset by the amount of accounts payable owed to third
     parties at the time of closing, in equal monthly installments.

     The loss on the sale of VSC was approximately $2,300.



                                      F-14
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 4  -  Details of Balance Sheet:

     Inventories:                                             July 31,
                                                              --------
                                                        2001              2000
                                                        ----              ----
     Finished goods                              $      3,764      $      7,579
     Bulk and work in process                           5,259            11,864
     Raw materials and packaging components             4,254             7,690
                                                 ------------      ------------
     Total inventory                             $     13,277      $     27,133
                                                 ============      ============


     Property, Plant and Equipment:                           July 31,
                                                              --------
                                                        2001              2000
                                                        ----              ----

     Land                                        $      1,451      $      1,451
     Buildings and improvements                         9,023             8,908
     Capital lease building                             2,416             2,761
     Leasehold improvements                               518               514
     Machinery and equipment                           20,927            20,909
     Furniture and fixtures                               570               568
     Computer Equipment                                 2,548             2,609
     Transportation Equipment                             253               253
                                                 ------------      ------------
     Sub-Total                                         37,706            37,973

     Accumulated depreciation and amortization        (19,697)          (17,395)
                                                 ------------      ------------
     Net property, plant and equipment           $     18,009      $     20,578
                                                 ============      ============

                                      F-15
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 4 - Details of Balance Sheet - (continued):


<TABLE>
<CAPTION>
     <S>                                                         <C>                        <C>
     Accrued payroll and related                                  $        903               758
     Accrued interest                                                       57               188
     Income taxes payable                                                   58               354
     Accrued for plant shut down                                           183               498
     Accrued for product returns                                           978              --
     Accrued brokerage                                                    --                  76
     Accrued advertising and promotion                                     486             1,799
     Accrued severance                                                     328               722
     Other                                                                 854               956
                                                                  ------------               ---

     Accrued Expenses                                             $      3,847       $     5,351
                                                                  ============       ===========
</TABLE>


Note 5 -  Long-Term Debt:

<TABLE>
<CAPTION>
                                                                              July 31,
                                                                   -----------------------------
                                                                      2001              2000
                                                                   -----------       -----------
    <S>                                                           <C>               <C>
     Notes payable, Congress Financial Corporation,
       under a $30.5 million revolving line of credit,
       due October 16, 2003                                        $    11,052       $      --

     Term note payable, Congress Financial Corporation,
       under a 30.5 million revolving line of credit,
       payable in installments to October 2005                           4,813              --

     Notes payable to bank, under revolving line of credit,
       repaid in October 2000                                                             14,157

     Term note payable to bank, repaid in October 2000                                     4,382

     Bonds payable, New Jersey Economic Authority,
       interest at the floating tax-free rate (2.46% at July
       31, 2001), due May 1, 2003                                        1,400             2,120

     Bonds payable, New Jersey Economic Authority,
       interest at 6.90%, due June 30, 2007                              2,975             3,425

     Various equipment financing agreements,                               771               934
       interest at 7.17% - 8.50%

                                                                   -----------       -----------
     Total                                                              21,011            25,018

     Less current portion                                                2,290             2,365
                                                                   -----------       -----------

     Long-Term Debt - Less current portion                         $    18,721       $    22,653
                                                                   ===========       ===========
</TABLE>

                                      F-16
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 5 - Long-Term Debt - (continued):

     Notes Payable to Congress Financial Corporation
     -----------------------------------------------

     On October 16, 2000 the Company entered into a loan and security agreement
     with Congress, a subsidiary of First Union Corporation, to replace a
     previously existing credit agreement. The new agreement matures on October
     16, 2003. The Company can borrow up to $25,000 under a revolving credit
     commitment and $5,500 under a term loan commitment, subject to borrowing
     base limitations, as defined. Borrowings under the revolving credit
     commitment bear interest at either .75% above First Union's "prime rate" or
     at the Company's option, a rate of 2.75% above the adjusted Eurodollar rate
     used by the bank. The interest rate on the term loan is .25% higher than
     the revolving loan rates outlined above. The notes are collateralized by
     substantially all of the Company's assets.

     The agreement requires the Company to maintain minimum tangible net worth
     and contains various restrictions customary in such financial arrangements,
     including limitations on the payment of cash dividends.

     At April 30, 2001 the Company was not in compliance with the minimum
     tangible net worth covenant contained in the Company's loan and security
     agreement with Congress. On June 13, 2001 the Company entered into an
     amended agreement with Congress. Under the amended agreement, Congress
     waived the event of default existing as of April 30, 2001, and the rate of
     interest was increased to the prime rate plus 3%, increasing to 5% in the
     event of termination or non-renewal of the loan, or if an event of default
     occurs. The amended agreement also provides for a $500,000 permanent
     special reserve, an amendment fee of $50,000, and requires the Company to
     maintain revised minimum tangible net worth amounts. The Company was in
     compliance with the revised minimum tangible net worth covenant as of July
     31, 2001.

     Bonds Payable
     -------------

     One of the New Jersey Economic Development Authority tax exempt bond issues
     had an outstanding balance of $1,400 as of July 31, 2001. Interest on these
     bonds is payable based upon the weekly tax-free floating rate. The bonds
     require aggregate annual principal payments of $720 (interest payable
     monthly), through May 2002, and a final payment of $680 in May 2003. In
     connection with this bond issue, the Company is required to maintain a
     letter of credit from a bank in an amount equal to the outstanding
     principal balance. The fee for this letter of credit is 3% per annum. The
     bonds are collateralized by certain machinery and equipment.




                                      F-17
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 5 - Long-Term Debt - (continued):

     The other bonds payable to the New Jersey Economic Development Authority
     with a balance of $2,975 are collateralized by the Company's real property
     in Freehold, New Jersey. Interest is paid semi-annually on June 1 and
     December 1 of each year. Annual principal payments are due December 1 of
     each year and vary from $300 to $525 during the term of the mortgage with a
     final payment of $100 due June 30, 2007. The Company is required to make
     monthly escrow payments to a trustee for principal and interest. The
     Company maintains a letter of credit in an amount equal to the outstanding
     mortgage principal. The fee on this letter of credit is .75% per annum of
     the outstanding principal balance. The mortgage agreement contains certain
     restrictions including limitation of dividends based upon a formula.

     The aggregate amount of long-term debt maturing in each of the five years
     subsequent to July 31, 2001 and thereafter is as follows:

                   2002                     $   2,290
                   2003                         2,314
                   2004                        12,702
                   2005                         1,619
                   2006                         1,455
                   Thereafter                     631
                                            ---------
                   Total                    $  21,011
                                            =========




                                      F-18
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 6 - Special and Unusual Charges:

     During fiscal 1999, the Company implemented a long term restructuring plan
     to rebuild and improve the infrastructure of the Company and refine
     stability in the Company's operations. Special and unusual charges of
     approximately $3,360 consist of one time charges incurred as a result of
     the restructuring including management severance agreements of
     approximately $1,188, and the write-off of capitalized promotional costs of
     approximately $2,172.

Note 7 - Shutdown of Manufacturing Facility:

     Shutdown of manufacturing facility consists of the costs associated with
     the closing of the Portland manufacturing facility which approximated
     $1,291. These costs were accounted for in accordance with EITF 94-3,
     "Liability Recognition for Certain Employee Termination Benefits and Other
     Costs to Exit an Activity", and consist of severance costs, facility
     closing costs, lease continuation costs and writedowns of related fixed
     assets. As of July 31, 2001 the remaining balance was $183, consisting of
     lease continuation costs.













                                      F-19
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)


Note 8 - Income Taxes:

     The income tax provision (benefit) consisted of the following for the
     periods ended:

                                                    July 31,
                                         ----------------------------
                                          2001       2000       1999
                                          ----       ----       ----

     Current tax expense (benefit):
     Federal                           $(1,337)   $ 1,158    $  (776)
     State                                (251)        68        (73)
     Foreign                               264        325        175
                                       --------   -------    --------
                                        (1,324)     1,551       (674)
                                       =======    =======    =======

     Deferred tax expense (benefit):
     Federal                              (980)     2,040     (2,904)
     State                                  62        290       (312)
     Foreign                              --         --          --
                                       -------    -------    -------
                                          (918)     2,330     (3,216)
                                       -------    -------    -------
     Income tax provision (benefit)    $(2,242)   $ 3,881    $(3,890)
                                       =======    =======    =======


     The differences between the provision for income taxes and income taxes
     computed using the federal income tax rate were as follows for the periods
     ended:

                                                           July 31,
                                                --------------------------------
                                                   2001       2000       1999
                                                   ----       ----       ----
     Provision at statutory rate                 $(1,636)   $ 3,045    $(3,716)
     Increases (reductions) in taxes
     from:
       State income taxes, net                      (147)       358       (320)
       Foreign taxes                                 264        325       --
       Effect of foreign income not subject to
         federal income tax                         (201)      (217)        (3)
       Nondeductible costs                            17          7        123
       Increase in valuation allowance               295       --          250
       Reversal of prior tax accruals               (834)       363       (224)
                                                 -------    -------    -------

     Income tax provision (benefit)              $(2,242)   $ 3,881    $(3,890)
                                                 =======    =======    =======



                                      F-20
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

     Note 8 - Income Taxes - (continued):

     Deferred tax attributes resulting from differences between financial
     accounting amounts and tax basis of assets and liabilities were as follows:

                                                           July 31,
                                                    ----------------------
                                                       2001        2000
                                                    ---------    ---------

     Current assets and liabilities
         Allowance for doubtful accounts             $    97      $   237
         Inventory valuation (IRC(section mark)263A)     203          403
         Accrued expenses                                147          256
         Net operating loss carryforward                 252         --
         Inventory valuation allowance                 1,793          811
         AMT credit carryforward                         294          294
                                                     -------      -------
                                                       2,786        2,001
         Valuation allowance                            (545)        (250)
                                                     -------      -------
         Net current deferred tax asset              $ 2,241      $ 1,751
                                                     =======      =======


     Non-current assets and liabilities
         Deferred gain on sale of land               $   389      $   430
         Installment contract                           --           (206)
         Property and equipment                          352          130
         Other                                           413          339
         Accrued expenses                                437          470
                                                     -------      -------
                                                       1,591        1,163
         Valuation allowance                            --           --
                                                     -------      -------
         Net non-current deferred tax (liability)    $ 1,591      $ 1,163
                                                     =======      =======

     Valuation allowances are established when necessary, to reduce deferred tax
     assets to established realizable amounts. Because of losses experienced in
     fiscal 2001, a valuation allowance of $545 has been recorded to offset the
     related net deferred assets due to uncertainty regarding their future
     realization.

     The valuation allowance relates to utilization of state net operating
     losses and federal and state AMT credit carryforwards in 2001, and
     utilization of federal and state AMT credit carryforwards in 2000. The
     Company believes some uncertainty exists with regard to the ability to
     realize these items, and accordingly, has established a valuation
     allowance.

                                      F-21
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 9 - Recovery, price fixing settlement:

     On September 17, 1999, the Company entered into a Settlement Agreement with
     a key supplier in connection with the supplier's alleged participation in
     an unlawful conspiracy related to pricing of vitamins in the United States
     and elsewhere.

     In exchange for the Company's release and agreement to opt out of any
     settlement in a class action suit, the Company received a settlement
     compensation package comprised of the following: (i) a $10,000 cash
     payment; (ii) a price discount of 5% on future purchases up to $1,000 per
     year over three years; and (iii) an advance of $2,700 on any payments that
     may be due to the Company under a Most Favored Nations Clause contained in
     the Settlement Agreement. Under this clause, in the event that the class
     action suit was settled and the settlement amount that would have been
     received thereunder exceeded $12,700, the supplier agreed to make
     additional payments to the Company based on, and subject to certain
     adjustments to, the amounts recovered by the plaintiffs in the class action
     suit. The Company received a cash payment of $12,700 on September 24, 1999
     and an additional payment of $872 in April 2000 from this supplier. In
     addition, the company received $2,733 from two other suppliers in April
     2000.

     In August 2001, the Company received $3,752 from a key supplier in
     accordance with the September 17, 1999 Settlement Agreement. This amount
     consists of a payment due to the Company under the Most Favored Nation
     Clause contained in the Settlement Agreement, and is included in the
     results of operations for the year ended July 31, 2001.

Note 10 - Other Expenses, net:

                                         July 31,
                              ----------------------------------
                                2001          2000         1999
                                ----          ----         ----
     Interest expense         $ 2,767       $ 2,589      $ 2,682
     Interest income              (65)          (66)         (75)
     Other                        (69)         (158)        (178)
                              -------       -------      -------
     Other expenses, net      $ 2,633       $ 2,365      $ 2,429
                              =======       =======      =======


     Interest expense for the years ended July 31, 2001, 2000 and 1999, excludes
     capitalized interest of approximately 0, 0 and $37, respectively, relating
     to the renovation program at the Freehold facility.

Note 11 - Shareholders' Equity:

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

     In July 1995, the Board of Directors adopted the 1995 Stock Option Plan
     (the "1995 Option Plan") pursuant to which 125,000 shares of the Company's
     common stock were reserved for issuance to key employees of the Company.
     The Company's shareholders approved the 1995 Option Plan at the annual
     meeting on March 15, 1996. In April 1998, the shareholders approved an
     increase in the number of shares subject to the 1995 Option Plan to 250,000
     shares.


                                      F-22
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 11  -  Shareholders' Equity - (continued):

     In January 2000, the shareholders approved amendments to the 1995 Stock
     Option Plan to increase the number of shares subject to the Plan to 500,000
     shares, to provide the Compensation Committee of the Board with greater
     discretion with respect to the exercisability of options under the Plan,
     and to provide that options granted under the Plan will become immediately
     exercisable in full upon a change in control of the Company.

     In April 1998, the shareholders approved the Non-Employee Directors' Stock
     Option Plan, pursuant to which 62,500 shares of the Company's common stock
     were reserved for issuance. The Plan provides for grants as of September 1
     of each year, of options to purchase 1,250 shares of the Company's common
     stock to each of the Company's non-employee directors.

     In January 2000, the shareholders approved amendments to the Non-employee
     Directors' Stock Option Plan to increase the number of shares subject to
     the Plan to 125,000 shares, to increase the number of shares granted
     annually to each non-employee director to 3,125 shares and to provide that
     upon the death or retirement of a non-employee director, options granted
     under the Plan shall remain exercisable for the remaining term of the
     options.

     In May 2000, the Board of Directors amended the Non-Employee Directors'
     Stock Option Plan to decrease the number of shares granted annually to each
     non-employee director to 2,000 shares. This amendment was effected in
     connection with the approval of an annual grant, beginning in September
     2000, of $5 in common stock to each non-employee director, payable on a
     quarterly basis, based on attendance at regular board meetings.

     In June 2001, the Board of Directors amended the Non-Employee Directors'
     Stock Option Plan to provide that options granted under the Plan will
     become immediately exercisable in full upon a change in control of the
     Company.

     Reverse Stock Split
     -------------------

     On July 8, 1999, the shareholders of the Company approved an eight-for-one
     reverse split of the Company's common stock. The effects of the stock split
     were retroactively reflected in the 1999 consolidated financial statements
     and in these notes to the consolidated financial statements.

     Dividend Distribution
     ---------------------

     On May 15, 2000, the Board of Directors declared a dividend distribution of
     one preferred stock purchase right (a "right") for each outstanding share
     of the Company's common stock. Each right entitles the registered holder to
     purchase from the Company one-thousandth of a share of Series A Preferred
     Stock, par value $0.01 per share (the "Preferred Stock"), of the Company at
     a price of $21 per one-thousandth of a share of Preferred Stock (the
     "Purchase Price"), subject to adjustment.


                                      F-23
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 11  -  Shareholders' Equity - (continued):

     The rights generally will be exercisable only after (i) the close of
     business on the tenth business day following the date a person or group of
     affiliated or associated persons has acquired beneficial ownership of 15%
     or more of the outstanding shares of the Company's common stock or (ii) the
     close of business on the tenth day after the commencement of, or
     announcement of an intention to make a tender offer or exchange offer, by
     any person or group, the consummation of which would result in the person
     or group becoming the beneficial owner of 15% or more of the Company's
     common stock. The earliest of such dates being called the distribution
     date.

     The dividend was paid to the shareholders of record on May 24, 2000 (the
     "Record Date") and with respect to shares of common stock issued thereafter
     until the distribution date.

     The Rights Agreement provides that until the distribution date the rights
     will be transferred with and only with the shares of common stock.

     The Rights are not exercisable until the distribution date and will expire
     at the close of business on May 15, 2010, unless redeemed earlier by the
     Board.

     In the event any person or group becomes the beneficial owner of 15% or
     more of the common stock, a "Flip-In Event" will be deemed to have
     occurred. Following the occurrence of a Flip-In Event each of the rights
     (other than Rights held by the Acquiring Person) becomes a discount right
     entitling the holder to acquire, upon payment of the Purchase Price, common
     stock having a value equal to twice the Right's Purchase Price.

     If following the date a person or group becomes the beneficial owner of 15%
     or more of the common stock, the Company engages in a merger or other
     business combination in which the Company does not survive or the common
     stock is changed or exchanged, or transfers more than 50% of the Company's
     assets or earning power (on a consolidated basis) in one transaction or a
     series of transactions, a "Flip-Over Event" shall be deemed to have
     occurred. Following the occurrence of a Flip-Over Event, each Right (other
     than Rights beneficially owned by the acquiring person triggering the
     Flip-Over Event, which are voided) becomes a right to acquire common shares
     of the other party to the transaction having a value equal to twice the
     Purchase Price.

     Rights are redeemable at $0.01 per Right by action of the Board at any time
     prior to the public announcement that any person has acquired beneficial
     ownership of 15% or more of the common stock. During the time the Rights
     are redeemable the Board may amend the Rights Plan to extend the time
     period during which the Rights may be redeemed.

                                      F-24
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 11  -  Shareholders' Equity - (continued):

     Shares Authorized
     -----------------

     On June 5, 2000, shareholders of the Company approved an amendment to the
     Company's Certificate of Incorporation to decrease the authorized number of
     shares of the Company's common stock from 25,000,000 to 4,500,000 and of
     the Company's preferred stock from 2,000,000 to 250,000 shares.

Note 12  -  Stock Option Plans:

     The Company has options outstanding under two plans. Under the 1995 Option
     Plan and the Non-Employee Directors' Stock Option Plan, options may be
     granted for 500,000 and 125,000 shares, respectively. The term of each
     option may not exceed ten years from the date of the grant (five years for
     options granted to employees owning more than 10% of the Company's voting
     stock).

     A summary of the Company's stock option activity and related information
     for the years ended July 31, follows:


<TABLE>
<CAPTION>
                                                              1993           1995         Non-Employee       Other      Option Price
                                                          Option Plan     Option Plan    Director Plan      Options         Range
                                                          -----------     -----------    -------------      -------         -----
     <S>                                                   <C>           <C>             <C>              <C>           <C>
     Outstanding at July 31, 1998                              53,875        57,623          11,250           12,500
     Granted                                                     --         238,250          19,375             --        3.75-16.00
     Cancelled                                                (22,625)      (35,665)         (2,500)         (12,500)     7.52-26.50
     Exercised                                                   --            --              --               --
                                                        ----------------------------------------------------------------------------
     Outstanding at July 31, 1999                              31,250       260,208          28,125             --

     Granted                                                     --           6,000          19,271             --        3.69-4.81
     Cancelled                                                (31,250)      (40,458)           --               --        4.63-26.48
     Exercised                                                   --            --              --               --
                                                        ----------------------------------------------------------------------------
     Outstanding at July 31, 2000                                --         225,750          47,396             --

     Granted                                                     --         331,000          65,334             --        0.50-3.00
     Cancelled                                                   --         (64,125)        (30,250)            --        2.41-18.72
     Exercised                                                   --            --              --               --
                                                        ----------------------------------------------------------------------------
     Outstanding at July 31, 2001                                --         492,625          82,480             --
                                                        =============    ==========      ==========       ==========

     Options currently exercisable                               --         393,458          31,813             --
                                                        =============    ==========      ==========       ==========
     Options available for grant at July 31, 2001                --           7,375          42,520
                                                        =============    ==========      ==========
</TABLE>

     The weighted average fair value of options granted at fair market value was
     $.88, $2.16 and $3.46 where the exercise price equals stock price during
     the fiscal years ended July 31, 2001, 2000 and 1999, respectively.


                                      F-25
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 12  -  Stock Option Plans - (continued):

The table below summarizes information relating to options outstanding and
exercisable at July 31, 2001:

<TABLE>
<CAPTION>
                                 Options Outstanding                                         Options Exercisable
--------------------------------------------------------------------------------   ------------------------------------
        Exercise            Options         Weighted Avg.         Remaining Est.          Options        Weighted Avg.
          Price         Outstanding        Exercise Price           Life (Years)      Exercisable       Exercise Price
<S>                       <C>                <C>                          <C>        <C>              <C>
     $     0.50-5.00        479,105            $     2.35                   8.5           333,438       $       2.89
          5.01-10.00         57,500                  7.02                   8.5            57,500               7.02
         10.01-15.00         16,250                 11.78                   8.0            12,083              11.88
         15.01-20.00         22,250                 15.97                   3.3            22,250              15.97
</TABLE>

The fair value of options granted in the years ended July 31, 2001, 2000 and
1999 is estimated on the date the options are granted based on the Black-Scholes
option-pricing model. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.

The following weighted-average assumptions were used:

          Year Ended July 31,                2001             2000
          -------------------                ----             ----
          Risk-free interest rate            6.0%             6.0%
          Expected volatility               59.5%            53.9%
          Dividend yield                       0%               0%
          Expected life                   5 years          5 years


                                      F-26
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 12  -  Stock Option Plans - (continued):

The Company accounts for the costs of stock-based compensation in accordance
with APB 25, "Accounting for Stock Issued to Employees", rather than the fair
value-based method in SFAS 123. No compensation cost has been recognized for the
Company's stock option plans. Had compensation cost been determined based on the
fair values of the stock options at the date of grant in accordance with SFAS
123, the Company would have recognized additional compensation expense, net of
taxes, of $186, $8 and $458 for the years ended July 31, 2001, 2000 and 1999,
respectively. The Company's pro-forma net income and pro-forma net income per
share for the years ended July 31, 2000, 1999 and 1998 would have been as
follows:

<TABLE>
<CAPTION>
                                                                  Year End July 31,
                                                                  -----------------
                                                        2001            2000             1999
                                                        ----            ----             ----
     Net income (loss)
     -------------------------------------------------------------------------------------------------
     <S>                                       <C>                <C>               <C>
        As reported                              $    (2,548)       $   5,074         $  (7,041)
        Pro-forma                                     (2,734)           5,066            (7,499)

     Net income (loss) per share - Diluted:
     -------------------------------------------------------------------------------------------------
        As reported                              $     (1.22)       $    2.43         $   (3.28)
        Pro-forma                                      (1.30)            2.42             (3.49)
</TABLE>

     Since compensation expense associated with option grants is recognized over
     the vesting period, the initial impact of applying SFAS 123 on pro-forma
     disclosure is not representative of the potential impact on net income for
     future years, when the effect of the recognition of a portion of
     compensation expense from vesting of prior awards would be reflected.

Note 13 - Employee Benefit Plan:

     The Company has a Defined Contribution Savings Plan (the "Plan") which
     qualifies under Section 401(k) of the Internal Revenue Code. Under the
     Plan, the Company matches the employee's contributions up to a maximum of
     five hundred dollars per year. For the fiscal years ended July 31, 2001,
     2000 and 1999 the Company contributed $112, $119 and $206, respectively, to
     the Plan.

Note 14  -  Related Party Transactions:

     The Company has advanced funds to certain shareholders. Interest is charged
     using the monthly long term applicable federal rate. The amounts due at
     July 31, 2001 and July 31, 2000 totaled $570 and $537, respectively. These
     amounts are payable, $415 by July 2005 and $155 by March 2005. Interest
     income earned on receivables from shareholders was approximately $21 and
     $26 for the years ended July 31, 2001 and 2000, respectively.

     Interest on a loan payable to a shareholder aggregated approximately $2,0
     and $1 for the years ended July 31, 2001, 2000 and 1999, respectively.


                                      F-27
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 14  -  Related Party Transactions - (continued):

     The Company had advanced funds to certain employees. Interest was charged
     at 8% per annum. These amounts were paid back during the fiscal year ended
     July 31, 1999.

     The Company sells products to Healthfair Vitamin Centers, Inc., a company
     wholly owned by a major shareholder of the Company. Sales to this affiliate
     were $15, $39 and $63 for the years ended July 31, 2001, 2000 and 1999,
     respectively. The amount due from this affiliate was $3 and 0 at July 31,
     2001 and 2000, respectively.

     The Company sells products to D.N.R. Inc., an Israeli company one of whose
     principal shareholders is the brother-in-law of the former President of the
     Company's International Division. These sales aggregated 0,0 and $128 for
     the years ended July 31, 2001, 2000 and 1999, respectively. There were no
     accounts receivable from these related parties at July 31, 2001 and 2000.

     During the fiscal years ended July 31, 2001, 2000 and 1999 the Company paid
     approximately $302, $309 and $112, respectively, for legal services
     provided to the Company by Edell & Associates. Marc Z. Edell, a former
     Director of the Company and the son of the Chairman, is a principal of
     Edell & Associates.

     The Company held a contract receivable from Agora Holding Company
     ("Agora"), a partnership consisting of Andrew M. Pinkowski and certain
     previous shareholders of Hall. The amount due from Agora was $813 at July
     31, 1999 which was paid in full in October 1999. Interest income earned by
     the Company on this contract was 0, $18 and $74 for the years ended July
     31, 2001, 2000 and 1999, respectively. The Company leased its manufacturing
     and administration facility in Portland, Oregon from Agora until October
     1999. Rent expense incurred by the Company for this property was 0, $44 and
     $170 for the years ended July 31, 2001, 2000 and 1999, respectively.




                                      F-28
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 15 - Commitments and Contingencies:

     Operating Leases
     ----------------

     The Company leases certain production and warehouse facilities and other
     equipment under long-term operating leases expiring in fiscal years through
     2004. The leases provide that in addition to rent, the Company pays taxes,
     maintenance, insurance and other related expenses. Rent expense aggregated
     $420, $1,373 and $1,305 for the years ended July 31, 2001, 2000 and 1999,
     respectively. Future minimum lease payments due under these leases at July
     31, 2000 are as follows:

                Year Ending
                  July 31,
                  --------
                    2002                 $322
                    2003                  180
                    2004                  168
                    2005                  167
                    2006                  161
                                         ----
                    Total                $998
                                         ====

     Capital Leases
     --------------

     In connection with the sale/leaseback transaction in 1998, the Company has
     entered into a capital lease for its warehouse and distribution facility
     expiring in July 2008, with aggregate monthly payments of $3,900 as of July
     31, 2001. The following is a schedule by years of future minimum lease
     payments under the capital lease, together with the present value of the
     net minimum lease payments as of July 31, 2001:

                                        Year Ending
                                          July 31,
                                          --------

                                            2002       $  520
                                            2003          520
                                            2004          520
                                            2005          585
                                            2006          585
                                      Thereafter        1,170
                                                       ------

                    Total minimum lease payments        3,900
               Less amount representing interest         (993)
                                                       ------
     Present value of net minimum lease payments        2,907
                         Less current maturities         (284)
                                                       ------
                            Long-term maturities       $2,623
                                                       ======

                                      F-29
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 15- Commitments and Contingencies - (continued):

     Employment Agreements
     ---------------------

     The Company has entered into an employment agreement with Mr. E. Joseph
     Edell, the Company's Chairman and Chief Executive Officer. The employment
     agreement provides for salaries aggregating $344 and $172 in fiscal 2002
     and 2003, respectively.

     The agreement with Mr. Edell is for one year and expires on January 31 of
     each year and is automatically extended for successive one-year periods
     unless the Company or Mr. Edell gives three months' notice that the term of
     employment shall not be further extended. In the event notice is given in
     accordance with the terms of the agreement, Mr. Edell is entitled to
     receive a severance payment equal to his annual salary.

     The Company maintains employment agreements with other key management
     personnel.

     Litigation
     ----------

     In November 1989, the Company halted sales and distribution and initiated a
     voluntary recall of its products, L-tryptophan. In December 1989, the Food
     and Drug Administration (FDA) determined that there may be an unequivocal
     epidemiological link between the ingestion of L-tryptophan and a blood
     disorder known as eosinophilia myalgia syndrome and ordered a nationwide
     recall. The FDA has been unable to determine the exact cause of the illness
     and it appears it will be some time before the causative factor and the
     pathogenesis of the disease can be determined. To date, 38 cases have been
     filed against the Company, all of which have been settled, with all costs
     being covered by the raw material supplier. Any possible additional costs
     cannot be reasonably estimated. However, it is probable that the raw
     material supplier will continue to cover future L-tryptophan settlements.
     In the event that the supplier does not cover future settlements, the raw
     material distributor's insurance coverage, coupled with the indemnification
     fund established by the raw material supplier and the Company's product
     liability insurance should satisfy any claims, subject to applicable policy
     limits.

     Other
     -----

     The Company is engaged from time to time in various legal actions and
     governmental claims incident to its business. The Company believes the
     amount of liability, if any, from these proceedings will not have a
     material adverse impact on the Company's financial position or operations.

     Standby Letter of Credit
     ------------------------

     The Company has two standby letters of credit aggregating $4,135 related to
     the New Jersey Economic Development Authority borrowings.

                                      F-30
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 16 - Major Customers/Suppliers:

     Customers
     ---------

     The Company sells its products to a geographically diverse base of
     customers, primarily national and regional drug stores, mass merchandiser
     and supermarket chains. One customer accounted for 57% of net sales for the
     fiscal year ended July 31, 2001. The same customer accounted for 47% of net
     sales in the fiscal year ended July 31, 2000.

     Suppliers
     ---------

     One of the Company's suppliers individually accounted for approximately 16%
     of total purchases in 2001 and 19% in 2000. The Company believes that
     materials purchased from this supplier are readily available from numerous
     sources and that the loss of this supplier would not adversely affect its
     operations.

Note 17  - Unaudited Quarterly Financial Data:



<TABLE>
<CAPTION>
                                                              FIRST         SECOND          THIRD         FOURTH         FULL
YEAR ENDED:                                                  QUARTER        QUARTER        QUARTER       QUARTER         YEAR
-----------                                                  -------        -------        -------       -------         ----
<S>                                                      <C>            <C>           <C>            <C>            <C>
JULY 31, 2001

    Net sales                                            $    15,828    $   19,590    $   15,651     $    16,800    $   67,869
    Gross profit                                               3,704         4,981         3,844           1,071        13,600
    Income (loss) from operations                               (844)           21          (820)         (4,266)       (5,909)
    Net income (loss)                                         (1,075)         (533)         (923)            (17)       (2,548)
    Net income (loss) per share - Basic                        (0.51)        (0.25)        (0.44)          (0.02)        (1.22)
    Net income (loss) per share - Diluted                      (0.51)        (0.25)        (0.44)          (0.02)        (1.22)

JULY 31, 2000

    Net sales                                            $    21,412    $   29,625    $   17,234     $    17,597    $   85,868
    Gross profit                                               5,058         9,383         4,582           2,599        21,622
    Income (loss) from operations                             (1,336)        1,519        (1,862)         (3,306)       (4,985)
    Net income (loss)                                          4,976           458         2,231          (2,591)        5,074
    Net income (loss) per share - Basic                         2.38          0.22          1.07           (1.24)         2.43
    Net income (loss) per share - Diluted                       2.38          0.22          1.07           (1.24)         2.43
</TABLE>

     The fourth quarter 2001 was detrimentally impacted by reduced production
     levels, an increase in inventory reserves to provide for slow moving or
     obsolete inventory, and the write-off of the balance in barter credits.

     The fourth quarter 2000 was detrimentally impacted by reduced production
     levels, additional absorption of overhead costs and an increase in the
     allowance against barter credits.


                                      F-31
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 18- Subsequent Event

     On September 21, 2001, the Company signed a non-binding letter of intent
     with Inverness Medical Innovations, Inc. ("Innovations") for Innovations to
     acquire all of the outstanding stock of the Company. The Company and
     Innovations signed a non-binding letter of intent on September 21, 2001,
     which describes the general terms of Innovations' proposed acquisition of
     the Company. As contemplated by the letter of intent, each shareholder of
     the Company would receive from Innovations $2.50 cash for each share of the
     Company common stock held by such shareholder, except that certain of the
     Company's principal shareholders will receive either cash, restricted
     shares of common stock of Innovations or a combination thereof, valued at
     $2.50 for each share of the Company's common stock held by such
     shareholders.

     Innovations is a majority-owned subsidiary of Inverness Medical Technology,
     Inc. ("Inverness"). Inverness has agreed to be acquired by Johnson &
     Johnson. As part of the pending acquisition by Johnson & Johnson, Inverness
     plans to restructure its operations so that its women's health, nutritional
     supplements and clinical diagnostics businesses are held by Innovations.
     Innovations will then be split-off from Inverness as a separate,
     publicly-owned company based in Waltham, Massachusetts.

     The acquisition of the Company by Innovations is subject to a number of
     conditions, including negotiation of a definitive acquisition agreement,
     approval by Innovations' and the Company's boards of directors, approval by
     the Company's shareholders, modification of loan agreements with the
     Company's principal lender, satisfactory due diligence, and completion of
     the pending split-off of Innovations and merger of Inverness with Johnson &
     Johnson. The letter of intent is non-binding, and there can be no assurance
     that the Company will be able to reach a definitive agreement with
     Innovations, or that even if it does enter into a definitive agreement with
     Innovations, that Innovations will complete the acquisition of the Company
     or that it will acquire the Company on the terms described in the letter of
     intent.

     Four shareholders of the Company holding approximately 42% of the Company's
     outstanding common stock have entered into voting agreements with
     Innovations. The voting agreements require these shareholders to vote all
     of the shares of the Company common stock they own in favor of the
     acquisition of the Company by Innovations and against any competing
     proposal. The voting agreements expire on January 19, 2002 if the Company
     and Innovations have not entered into a definitive acquisition agreement by
     that date.




                                      F-32
<PAGE>


SCHEDULE II

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE YEARS ENDED JULY 31, 2001 AND 2000
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>

      FOR THE                                        BALANCE AT        CHARGED TO
    YEAR ENDED                                       BEGINNING          COST AND                                 BALANCE AT
     JULY 31,               DESCRIPTION               OF YEAR           EXPENSES        DEDUCTIONS              END OF YEAR
     --------               -----------               -------           --------        ----------              -----------
<S>                 <C>                         <C>                  <C>               <C>                    <C>
                    Allowance for doubtful
                    accounts:

       2001                                      $           431                49                   276      $          204
                                                 ================     =============     =================     ==============

       2000                                      $           580               100                   249      $          431
                                                 ================     =============     =================     ==============

                    Inventory reserve:

       2001                                      $         2,148             2,759                   187      $        4,720
                                                 ================     =============     =================     ==============

       2000                                      $         2,539           -                         391      $        2,148
                                                 ================     =============     =================     ==============

                    Valuation allowance related
                    to deferred taxes:

       2001                                      $           250               295                            $          545
                                                 ================     =============     =================     ==============

       2000                                      $           250           -                   -              $          250
                                                 ================     =============     =================     ==============
</TABLE>


                                      S-1
<PAGE>

                                  Exhibit Index
                                  -------------

   Exhibit Number       Description

         4.3            First Amendment to Rights Agreement, dated as of
                        February 1, 2001, between IVC Industries, Inc, and
                        American Stock Transfer and Trust Company, as Rights
                        Agent.

         4.4            Second Amendment to Rights Agreement, dated as of
                        September 21, 2001, between IVC Industries, Inc, and
                        American Stock Transfer and Trust Company, as Rights
                        Agent.

        10.9            Non-Employee Directors' Stock Option Plan as amended
                        through June 2001.

         11             Earnings Per Share Computation

         21             Subsidiaries of IVC Industries, Inc.

         23             Consent of Amper Politziner & Mattia P.A., independent
                        accountants.