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, 1999

|_|   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
    incorporation or organization)                         Identification No.)

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

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 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. |_|

As of October 1, 1999, the aggregate market value of the Common Stock of the
registrant held by non-affiliates of the registrant was $2,984,300.

The number of shares of Common Stock ($.08 par value) outstanding as of October
1, 1999 was 2,088,092.
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                              IVC INDUSTRIES, INC.

                                TABLE OF CONTENTS

                           Annual Report on Form 10-K
                     For the Fiscal Year ended July 31, 1999

                                                                        Page No.
                                                                        --------
PART I

Item 1  Description of Business ........................................    1

Item 2  Description of Property ........................................   11

Item 3  Legal Proceedings ..............................................   12

Item 4  Submission of Matters to a Vote of Security Holders ............   12

PART II

Item 5  Market For Common Equity and Related Shareholder Matters .......   13

Item 6  Selected Financial Data ........................................   14

Item 7  Management's Discussion and Analysis of Financial Condition
        and Results of Operations ......................................   15

Item 8  Financial Statements and Supplementary Data ....................   22

Item 9  Changes In and Disagreements With Accountants on Accounting
        and Financial Disclosure .......................................   22

PART III

Item 10 Directors and Executive Officers of the Registrant .............   23

Item 11 Executive Compensation .........................................   26

Item 12 Security Ownership of Certain Beneficial Owners and Management .   33

Item 13 Certain Relationships and Related Transactions .................   35

PART IV

Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K    36
<PAGE>
                                     PART I

Item 1 Description of Business

The Company

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

      IVC 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
("soft gels"). The Company manufactures virtually all of its products.

      On July 8, 1999, the shareholders of IVC approved an eight-for-one reverse
split of the common stock of IVC. 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, IVC 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 IVC's warehouse in Freehold, New
Jersey.

Risk Factor

      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.


                                       1
<PAGE>

      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 the Company's products. IVC'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 IVC 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 IVC's
products are sold. See "Government Regulation."

      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.


                                       2
<PAGE>

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, Saw Palmetto and Ginseng and various multivitamin
combinations. IVC has the capacity to produce millions of tablets per day using
technologically advanced high-speed manufacturing equipment. IVC's fully
automated packaging lines are capable of packaging in excess of 200,000 bottles
per shift, per day. Intergel, the Company's soft gel encapsulation division, has
the capacity to produce in excess of 2 billion soft gel capsules annually.

      IVC'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 IVC's flagship brand, Fields of Nature, 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 brand are free of sugar, salt
and starch, and most are hypoallergenic. IVC has also obtained kosher
certification for a substantial portion of the Synergy Plus line. The Company
believes that its kosher certification can help it to achieve increased market
share both domestically and on an international basis.

Manufacturing and Packaging

      IVC owns and leases facilities located in Freehold, New Jersey, and leases
facilities in Portland, Oregon. These facilities are equipped with large-volume
blending, 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, 1999, the Company announced that it will
shut down the Portland Oregon facilities and integrate the operations into the
Freehold facility. The Company anticipates the integration to be completed by
the end of calendar 1999. 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 soft
gel operations are located in a leased facility in Irvington, New Jersey. IVC
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.


                                       3
<PAGE>

Soft Gel 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,
soft gels. Factors contributing to the popularity of soft gels over tablets
include the fact that soft gels 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 gel encapsulation division, produces soft
gels in various shapes and sizes. Among the new vitamin and nutritional
supplements produced by Intergel in soft gel form are Saw Palmetto, Lycopene,
Green Tea, St. John's Wort, Kava Kava and Ginseng. 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's strategic business decision to manufacture soft gel products will
allow it to better control its own supply, quality and cost of such products
while it pursues the opportunities of marketing soft gel products to third
parties. With this plant at full scale levels of production, IVC is able to
internally manufacture all its own soft gel requirements, and to supply soft
gels to a variety of customers, as well as to custom formulate unique soft gel
products targeted towards nutritional and other applications.

      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 entered into a multi-product development agreement
with Block Drug Company, Inc., a major multinational pharmaceutical company, to
jointly develop soft gel encapsulated OTC products, which are currently being
manufactured by Intergel for that company. Intergel is also working on various
other OTC products for other companies and expects to introduce these during
2000. Recently, Intergel has expanded its sales efforts for soft gels, including
participating in trade advertising and trade shows and has made soft gels a
major focus in all international business development areas.

      Soft gel nutritional and herbal products manufactured by Intergel are
marketed as "Liquafil" soft gel under the Company's Fields of Nature, Synergy
Plus and private label brands. As new soft gel 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
soft gel nutritional and herbal products. The Company has secured additional
distribution through customers including Costco Wholesale, Eckerd Drug, American
Stores and Kerr Drug with soft gels such as Green Tea, St. John's Wort and
Ginseng.

Marketing and Distribution Strategies

      Mass Market Retail Chains

      In contrast with nationally advertised brand manufacturers, which focus
primarily on the consumer, IVC's strategy is to build relationships with
national and regional drug store, supermarket and mass merchandising retail
chain customers. The Company believes that


                                       4
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partnerships with mass retailers, coupled with new product introductions, gives
IVC the ability to react to changing market conditions more rapidly.

      In addition, IVC is working with its customers to develop their store
branded product category management programs. All supply agreements are being
reviewed with customers to ensure the development of a comprehensive sales and
marketing program. Since the cost to a retailer of IVC'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 IVC'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 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. IVC 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, IVC's
marketing department and creative arts group develops 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, IVC's health food store brand, is preparing, via a label
change and new marketing strategies, to capitalize on distribution opportunities
created by dynamic changes within the health food market. The industry has seen
several leading brands make the transition into mass channels thus creating
available 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. As a result, the Company
believes that health food retailers may begin to de-emphasize these brands,
thereby creating new market opportunities.

      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.


                                       5
<PAGE>

      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 America, China and
Europe.

      Other Channels of Distribution

      The Companysupplies certain customers who sell products similar to IVC's
but do not manufacture these products or directly compete with IVC or its
customers. The Company has also begun to manufacture and package products for
certain customers who need to supplement their own capacities either on an
emergency basis during peak season demands or those customers who "outsource" a
portion of their needs on an ongoing basis. This business represents additional
opportunities for IVC to increase its plant utilization rates and profitability
without any significant additional capital outlays.

Industry Overview

      Based upon current industry estimates, the Company believes that the U.S.
retail market for vitamins and supplements to be in excess of $11 billion
annually with compounded sales growth since 1993 in double digits. Packaged
Facts, an industry market research company, estimates that the market will
experience double-digit growth through the year 2003. According to a recent
survey, more than half of all adults in the United States take some form of
vitamin and/or nutritional supplement.

      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 IVC'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.
IVC 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.


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<PAGE>

Source and Availability of Raw Materials

      IVC 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
hired new purchasing personnel with industry experience, and has implemented a
new Material Requirement Planning (MRP) system. These steps have allowed IVC 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 25% of the total purchases in 1999 and 26% in 1998,
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
IVC's raw material purchases.

Major Customers

      IVC's active customer base approaches 2,000 accounts. The Company's ten
largest customers accounted for 78% of sales during fiscal 1999 with one
individual customer, Costco Wholesale accounting for 48% of sales. During fiscal
1998, the Company's ten largest customers accounted for approximately 73% of
sales, with one customer, Costco Wholesale accounting for 36% of sales. A high
priority has been placed on efforts to diversify distribution. Major accounts
currently not supplied have been identified and contacted. Marketing and sales
programs are being produced for presentation to potential new customers.

Quality Control

      IVC'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 IVC'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, IVC'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 soft gels that are
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, IVC's Fields of Nature,
LiquaFil, Rybutol and Nature's Wonder brands compete with numerous brands of
larger vitamin distributors and manufacturers, such as NBTY, Inc., Rexhall
Sundown, Inc., Leiner Health Products Group, Inc. and Pharmavite Corp. These
manufacturers are also IVC's competitors for private label business. In
addition, IVC competes with the more heavily advertised national brands, which
have been marketed by major over-the-counter manufacturers. According to the
National Ad Council, spending for branded supplements and herbal products could
top $700 million in 1999, representing an increase of over 50%. The marketplace
for private label business is extremely price sensitive with service


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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 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. The Company's Synergy
Plus competes with brands manufactured by Twinlab Corporation, the Solgar
Vitamin and Health division of American Home Products Corporation and 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 its
competitive pricing, marketing strategies, quality of products, kosher
certification, special formulation of products, sales support and its full line
of products. IVC also derives a competitive advantage from being one of the few
vertically integrated tablet and soft gel manufacturers, thereby having the
ability to manufacture and package all of its vitamin and nutritional supplement
products. This affords IVC 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 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 IVC's products are
sold. In addition, the Company manufactures and markets certain of its products
in compliance with the guidelines promulgated by the United States Pharmacopoeia
Convention, Inc. ("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. 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 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 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


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than acceptable statements of nutritional support, necessitating approval of a
costly new drug application, or relabeling to delete such statements.

      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 already commenced significant facility renovations that
should allow the Company to comply with the new regulations, once they are
enacted. 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 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

      IVC 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, Rybutol, Nature's Wonder, Pine Bros.(TM) and LiquaFil
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. IVC 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. IVC vigorously protects its trademarks against infringement.

Research and Development

      Historically, IVC has not conducted primary research for the development
of new ingredients. Instead, IVC's research efforts were solely focused on
developing new products in response to market trends and consumer demands. While
this method of product development is still employed by IVC, shifting market
demands for leading edge new products has led IVC into an agreement with Dr.
Alexander Schauss, a leading dietary supplement researcher and new product
developer. The Company believes that its affiliation with Dr. Schauss will
enhance the Company's ability to develop and introduce new products. IVC's staff
also continually


                                       9
<PAGE>

reformulates existing products in response to changes in nationally advertised
brand formulas in order to maintain product comparability.

      IVC 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 formulation department and its new soft gel
formulation department 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. Thus, 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.

Employees

      IVC employs 571 employees, of which 35 are in sales and marketing, 345 are
in manufacturing and packaging, 58 are in quality control and regulatory
compliance departments, 55 are in warehousing and 78 are in executive and
administrative positions. IVC believes that it has a satisfactory relationship
with its employees. IVC and its employees are not currently parties to any
collective bargaining agreement.

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.


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<PAGE>

Item 2 Description of Property

      The following table sets forth the Company's properties:

                                                        Approximate    Leased or
Location              Type of Facility                  Square Feet      Owned
--------              ----------------                  -----------      -----

Freehold, NJ          Manufacturing, Packaging,           160,000        Owned
                      Warehousing, Distribution and
                      Corporate Offices

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

Portland, OR          Manufacturing and Administration     39,000(2)    Leased


Portland, OR          Packaging and Warehousing            50,000(3)    Leased

Irvington, NJ         Manufacturing and Administration     35,000       Leased

Irvington, NJ         Warehousing and Distribution         43,000(4)    Leased

Surrey, British       Warehousing, Distribution and
  Columbia, Canada    Administration                        8,000       Leased

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

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

(2)   Production ceased at this facility in mid-September 1999

(3)   This facility is scheduled to be closed by the end of December 1999.

(4)   The Company subleases approximately 21,500 square feet of this facility to
      a third party.

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


                                       11
<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 IVC, 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

      IVC 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
IVC 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 IVC's financial position or operations.

Item 4 Submission of Matters to a Vote of Security Holders

      On July 8, 1999, shareholders of IVC at a special meeting of shareholders,
approved a eight-for-one reverse split of the common stock of IVC. Of the
17,211,540 shares eligible to vote at the meeting, 11,543,468 shares voted for
and 96,300 shares voted against the reverse stock split and 1,000 shares
abstained.


                                       12
<PAGE>

                                     PART II

Item 5 Market For Common Equity and Related Shareholder Matters

      IVC Common Stock trades on The Nasdaq SmallCap Market System under the
symbol "IVCO". The table below presents the quarterly high and low sales prices,
adjusted for the eight-for-one reverse split, for the Company's Common Stock as
reported by The Nasdaq SmallCap Market System.

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

        Fiscal Year 1998
            First Quarter           $19.76    $12.48
            Second Quarter           19.52     12.00
            Third Quarter            21.04     15.04
            Fourth Quarter           18.48     12.00

        Fiscal Year 1999
            First Quarter            14.87      9.00
            Second Quarter           11.00      4.00
            Third Quarter            13.50      4.00
            Fourth Quarter            8.50      2.75

      IVC 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 IVC. 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 IVC and other factors deemed relevant by the Board of
Directors.

      As of October 1, 1999, there were approximately 110 holders of record of
IVC's Common Stock. The Company believes that there were in excess of 1,100
beneficial holders of Common Stock as of such date.


                                       13
<PAGE>

Item 6 Selected Financial Data

      The following table sets forth income statement data 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,
                                                     --------------------
                                              1999          1998          1997          1996          1995
                                              ----          ----          ----          ----          ----
    OPERATING RESULTS
<S>                                       <C>            <C>           <C>           <C>           <C>

Net sales                                 $ 107,339      $ 119,775     $ 108,531     $ 104,159     $  89,097

Income (loss) from operations                (8,502)         3,484         4,423         1,540           260

Net income (loss)                            (7,041)     $   1,147     $   1,346     $     296     $     593

Net income (loss) per share - Basic       $   (3.28)     $     .54     $     .63     $     .14     $     .28

Net income (loss) per share - Diluted     $   (3.28)     $     .53     $     .63     $     .14     $     .28

<CAPTION>
                                              1999           1998          1997          1996          1995
                                              ----           ----          ----          ----          ----
    FINANCIAL POSITION
<S>                                          <C>            <C>           <C>           <C>           <C>
Total assets                                 65,241         81,254        68,210        68,675        51,141

Long term obligations -
   less current portion                      31,034         10,588        31,430        28,656        20,193

Shareholders' equity                         10,540         17,760        16,417        15,041        12,428
</TABLE>


                                       14
<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)


Strategic Restructuring Strategy

During fiscal 1999, the Company undertook a number of steps which are part of a
long-term strategic restructuring strategy. These steps accelerated during the
fourth quarter of fiscal 1999 and continued into the first quarter of fiscal
2000. The strategy is intended to (i) control expenses and assets, (ii) invest
in processes and systems and (iii) focus on IVC's core business.

In July 1999 the Company sold its Vitamin Specialties retail operations and
recorded a loss from the sale in the fourth quarter of $2.3 million. Management
had determined that the retail business conducted by Vitamin Specialties was not
part of its core business.

In an effort to improve manufacturing efficiencies, the Company is integrating
its Portland, Oregon manufacturing operations into its New Jersey facility. The
cost of this integration, which should be completed in calendar 1999, including
obtaining appropriate quality certifications, resulted in a fiscal 1999 cost of
$1.3 million.

The Company implemented a new Enterprise Resource Planning ("ERP") system and
related internal training program. The software system includes accounting, cost
and inventory control, order processing, enterprise planning, production
planning and engineering management. Fiscal 1999 charges related to
implementation of this system, primarily inventory adjustments and reserves,
amounted to $3.3 million, and an additional $4.3 million was attributable to
marketing promotional adjustments. IVC is expensing the cost of using internal
personnel on this project, as well as training costs, which amounted to $815,000
for fiscal 1999. In addition, cost of sales due to under-utilization of capacity
amounted to $650,000 and certain new governmental label regulations (DSHEA)
necessitated a write off of label inventory of $576,000 in the fourth quarter.
Implementation of this system is expected to improve inventory utilization,
improve manufacturing capacity analysis and utilization, and allow nationwide
purchasing programs to be implemented.

A key element of the restructuring strategy was the restructuring of management.
This involved the resignation of one executive officer, the retirement of
another and the hiring or promotion of three new executive officers. Severance
expenses in connection with this restructuring resulted in a cost of $1.2
million during the third and fourth quarter.

Also during the fourth quarter of fiscal 1999, the Company renegotiated several
customer supply agreements in order to align promotional aspects with purchases
and related cash receipts. This resulted in a write off of capitalized
promotional costs of $2.2 million.

Subsequent to year-end, in September 1999, the Company restructured its
financing arrangements and remedied all prior covenant violations. The
restructured credit facility substantially increased the borrowing availability
of the Company. See Note 4 to the Financial Statements.


                                       15
<PAGE>

Also in September 1999, the Company finalized a settlement with a key supplier
related to pricing discrepancies. The settlement, which provided the Company
with a cash flow infusion of $12.7 million, increased stockholders equity by
$6.2 million in the first quarter of fiscal 2000. See Note 16 to the Financial
Statements.

The sales and marketing team has been refocused and staffed for future growth.
In the core business, for both the Fields of Nature and private label customers,
a major focus will be on launching new and innovative products, which are
intended to allow the Company to stand out from its competition. A new promotion
and media program will promote these new products. Orders for some of these new
products have already been booked and will be shipped in the second quarter of
fiscal 2000. Several of these new products will be introduced in a soft gel
form, which has been favorably accepted in the marketplace. In addition, new
products will be added to the Synergy Plus product line, along with new
advertising and retail programs geared to the health foods market. The Synergy
Plus sales group has been reorganized under newly hired Vice President with an
extensive background and experience in the health foods market.

The Company is also evaluating other channels of distribution for its products
including e-commerce opportunities.


                                       16
<PAGE>

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,
                                                     --------------------
                                                 1999        1998       1997
                                                 ----        ----       ----

   Net sales                                    100.0%      100.0%     100.0%

   Cost of sales                                 75.6        76.2       74.1
                                                -----       -----      -----

   Gross profit                                  24.4        23.8       25.9

   Selling, general and administrative
       expenses                                  25.8        20.9       21.8

   Special and unusual charges                    3.1          --         --

   Loss on sale of retail subsidiary              2.2          --         --

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

   Income  (loss) from operations                (7.9)        2.9        4.1

   Other expenses-net                             2.3         1.3        1.5
                                                -----       -----      -----

   Income (loss) before income taxes            (10.2)        1.6        2.6

   Income taxes provision (benefit)              (3.6)         .6        1.4
                                                -----       -----      -----

   Net income (loss)                             (6.6%)       1.0%       1.2%
                                                =====       =====      =====


                                       17
<PAGE>

Year Ended July 31, 1999 Compared to the Year Ended July 31, 1998

      Net Sales. Net sales for the year ended July 31, 1999 were $107.3 million,
a decrease of $12.5 million or 10.4% compared to $119.8 million in the year
ended July 31, 1998. This decrease was principally related to lower sales levels
at Intergel, and lower sales of Synergy Plus and Vitamin Specialties products.
Sales at Intergel were lower than fiscal 1998 because fiscal 1998 sales included
one-time shipments approximating $8 million which were made at a minimum gross
profit margin. The Company also terminated sales to certain branded and private
label customers with lower than normal profit margins.

      Costs and Expenses. Cost of sales for the year ended July 31, 1999 was
$81.2 million, a decrease of $10.1 million, or 11% as compared to $91.3 million
for the year ended July 31, 1998. As a percentage of net sales, cost of sales
decreased .6% to 75.6% of net sales. The decrease in the percentage of sales was
primarily related to the favorable manufacturing costs at the Company's
manufacturing facilities as the Company realized the benefits of the reduced
workforce at the Freehold and soft gel encapsulation facilities and reduced cost
of raw materials. Favorable product mix towards herbal nutritional products,
which entail higher margins, and the absence of one-time low margin sales at
Intergel recorded during the prior year also contributed to the favorable
margins. These were offset by one-time charges discussed above related to the
restructuring strategy, including the implementation of the ERP system, capacity
under-utilization and label write-off.

Selling, general and administration expenses for the year ended July 31,1999
were $27.7 million, an increase of $2.7 million or 10.9% over the $25.0 million
for the year ended July 31, 1998. The increase was primarily related to the
one-time charges discussed above relating to marketing promotional adjustments,
in addition to higher personnel costs due to increased sales and marketing
staffing and bad debts. The cost of rent increased at our facilities primarily
due to rent at the Freehold warehouse facility exceeding depreciation of the
facility in fiscal 1998, as a result of the sale and leaseback of the building
at the end of fiscal 1998. These were offset by lower sales commissions paid to
brokers, reduced compensation paid to executives, lower cost of workers
compensation and other insurance, office supplies and postage.

      Special and Unusual Charges. Special and unusual charges incurred as a
result of the restructuring strategy including the cost of the management
severance agreements and the write-off of the capitalized promotional costs.

      Loss on Sale of Retail Subsidiary. Loss on sale of retail subsidiary
represents the loss realized on the sale of the Vitamin Specialties subsidiary.

Shutdown of Manufacturing Facility. Shutdown of manufacturing facility consists
of the cost of closing the Portland manufacturing facility, including severance
to employees, lease continuation costs and other facility closing costs.

      Other Expenses-Net. Other expenses-net increased $857 for the year ended
July 31, 1999. Interest expense was flat as compared to the prior year. However,
during the prior year the expense was offset by the gain on the sale of land of
$683 and interest income of $209.

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


                                       18
<PAGE>

Year Ended July 31, 1998 Compared to the Year Ended July 31, 1997

      Net Sales. Net sales for the year ended July 31, 1998 were $119.8 million,
an increase of $11.3 million, or 10.4% over $108.5 million for the year ended
July 31, 1997. This increase was principally attributable to the higher sales
levels recorded at Intergel, the Company's soft gel encapsulation division, the
inclusion of the Company's Vitamin Specialties health food store and mail order
operations, which were acquired in June of 1997, the introduction of the
Company's LiquaFil soft gel encapsulated vitamin and supplement product line,
and increased private brand sales levels at the Company's west coast and
Canadian operations. Partially offsetting these factors was the reduction in
sales of a line of products to a significant customer, reflecting the
termination of the supply agreement relative to the customer's store brand,
during the second quarter of fiscal 1997, and the discontinuance of the Revlon
product line.

      Cost and Expenses. Cost of sales for the year ended July 31, 1998 was
$91.3 million, an increase of $10.8 million, or 13.4% over $80.5 million for the
year ended July 31, 1997. Cost of sales increased 2.1% as a percentage of net
sales. These increases are attributable to the shift in sales mix toward private
brand products, resulting from increased promotional activities carried out by
certain of the Company's private brand customers, and the higher level of
nutritional sales by the Intergel division, which have lower profit margins than
the Company's core business segments. The fourth quarter 1998 gross profit was
detrimentally impacted by excess manufacturing labor caused by the unexpected
volume decrease in the fourth quarter, as compared to the third quarter. At July
31, 1998, the Company took a physical count of all inventories and adjusted to
these counts and valuations.

      The above factors were partially offset by the inclusion of the Vitamin
Specialties operations for the full year, and the increase in the gross profit
margins at the Portland facility attributable to new higher margin products
which have been added to the line during the year.

      Selling, general and administrative expenses for the year ended July 31,
1998 were $25.0 million, an increase of $1.4 million or 5.9% over $23.6 million
for the year ended July 31, 1997. This increase was primarily attributable to:
(i) achieving proper professional staff levels, mainly in accounting and
finance, (ii) the inclusion of the Vitamin Specialties operations for the full
year, (iii) increased consulting costs, primarily related to the implementation
of new computer systems, and (iv) increased professional fees. In addition,
distribution costs were higher as a result of the higher overall level of
shipments. These were partially offset by the overall lower level of spending in
selling and marketing, primarily related to the discontinuance of the Revlon
product line.

      Other Expenses - Net. Other expenses - net decreased by $67 for the year
ended July 31, 1998. This principally represents interest expense of $2.56
million, offset by interest income of $209 and rental income of $220, and the
gain of $683 recognized for the sale of land. Net interest expense for the year
ended July 31, 1998 increased from the prior year due to higher average amounts
of borrowing outstanding.

      Income Taxes. See "Income Taxes" note to Consolidated Financial Statements
for a reconciliation of the amount of tax computed under the statutory rates to
the income tax provision.


                                       19
<PAGE>

Liquidity and Capital Resources

At July 31, 1999, the Company had working capital of $20.3 million compared to
$4.5 million at July 31, 1998, an increase of $15.8 million. During the year
ended July 31, 1998 the entire long-term debt was classified as a current
liability as the Company was in violation of certain covenants with its bank. As
indicated above, for the current year, the Company restructured its financing
arrangements and remedied all prior covenant violations.

Net cash provided by operating activities totaled $174. This was primarily the
result of cash provided by reductions in inventory of $8.7 million as management
placed greater emphasis on reducing the inventory to more acceptable levels,
collections of accounts receivable of $4.4 million and reductions of prepaid
expenses and other assets of $1.7 million. These were offset by the cash used in
decreasing the accounts payable and accrued expenses of $9.3 million and the net
loss of $7.0 million reduced by adjustments for non-cash charges of $1.6
million.

In addition the Company spent $1.6 million on additions to property, plant and
equipment.

With the amended and restated credit agreement, the Company presently has a
revolving line of credit and a term loan in the amounts of $22.0 million and
$5.2 million, respectively. These agreements mature on July 31, 2002. The notes
are collateralized by substantially all of the Company's assets. In addition the
Company has a lease financing agreement which it entered into in August 1998
with a bank for up to $2.0 million for acquisitions of machinery and equipment.
At July 31, 1999, $1.1 million was available for additions.

For the year, the Company's working capital needs and funds for capital
expenditures were satisfied by cash flow generated from operations and bank
borrowings. The Company believes that its existing cash balance, internally
generated funds from operations and available financing will provide the
liquidity required to satisfy the Company's working capital needs and
anticipated capital expenditures for the next year.

Year 2000 ("Y2K") Compliance Program

Over the past two years IVC Industries, Inc. has replaced all information
technologies hardware and software, upgraded laboratory equipment, and replaced
facilities equipment. The Company completed comprehensive, company wide Y2K
testing during which the systems performed successfully. The Company also
contacted its vendors, suppliers, and service providers to seek assurance that
they will be Y2K compliant. Nevertheless, satisfactorily addressing the Y2K
issue is dependent on many factors, some of which are not completely within the
Company's control. Should the Company's internal systems or the internal systems
of one or more significant vendors or suppliers fail to achieve Y2K compliance,
the Company's business and its results of operations could be adversely
affected.

The total costs associated with the Company's compliance program are not
expected to be material to the Company's financial position. (The Company's new
Y2K-compliant management information systems would have been installed
regardless of the Y2K issue.) The Company's current estimates of the impact of
the Y2K issue on its financial position do not include costs that may result
from other companies' failure to become Y2K-compliant.


                                       20
<PAGE>

If, based on the responses to its inquiries, the Company determines that any of
its suppliers or vendors are not Y2K-compliant, the Company plans to arrange for
alternative sources of supply. The Company believes that the products and
services it purchases from its vendors and suppliers are available from numerous
sources and that the loss of a particular supplier would not adversely affect
its operations. However, if the Company is unable to locate suppliers that are
Y2K-compliant, there could be a material adverse affect on its operations.

Due to the general uncertainty with respect to the Y2K issue, however, there can
be no assurance that all Y2K issues will be foreseen and corrected on a timely
basis, or that no material disruption of the Company's business will occur.
Further, the Company's expectations are based on the assumption that there will
be no general failure of external local, national or international systems
(including power, communications, postal or transportation systems) necessary
for the ordinary conduct of business. The Company will, however, continue to
assess the risks presented by the Y2K problem and will develop contingency plans
if and when such plans become necessary.

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 27A of the Securities Act of 1933, 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", "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, 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.


                                       21
<PAGE>

Item 8 Financial Statements and Supplementary Data

                          Index to Financial Statements

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

Consolidated Balance Sheets
    As of July 31, 1998 and 1999.....................................F-2

Consolidated Statements of Operations for the Years Ended
    July 31, 1997, 1998 and 1999.....................................F-3

Consolidated Statements of Cash Flows for the Years Ended
    July 31, 1997, 1998 and 1999.....................................F-4 to F-5

Consolidated Statements of Changes in Shareholders'
    Equity for the Years Ended July 31, 1997, 1998 and 1999..........F-6

Notes to Consolidated Financial Statements...........................F-7 to F-27

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

      None.


                                       22
<PAGE>

                                    PART III

Item 10 Directors and Executive Officers of the Registrant

      The Company's directors and executive officers, are as follows:

            Name             Age                  Position
            ----             ---                  --------

      E. Joseph Edell        72     Chairman, Chief Executive Officer and
                                      President

      Domenic N. Golato      44     Vice President, Chief Financial Officer and
                                      Secretary

      William Lederman       52     Chief Operating Officer

      Michael Durso          41     Senior Vice President of Sales and Marketing

      Jesus Febus            37     Chief Information Officer and
                                      Senior Vice President of Information
                                      Technologies

      John H. Dettra Jr.     54     Senior Vice President Manufacturing Systems

      Arthur S. Edell        66     Director

      Marc Z. Edell          48     Director

      Dr. Mark S. Gold       50     Director

      Dennis E. Groat        58     Director

      Erwin Lehr             71     Director

      Andrew M. Pinkowski    65     Director

      David Popofsky         65     Director

Biographical Information

      E. Joseph Edell has been Chairman of the Board of Directors and Chief
Executive Officer of IVC since the Company's merger with American Vitamin in
1995. Prior to that merger, Mr. Edell had been president of American since 1955.
Mr. Edell is the brother of Arthur S. Edell.

      Domenic N. Golato was elected a Vice President in October 1999 and has
been Chief Financial Officer and Secretary of IVC since March 1999. He joined
the Company in 1998 as Vice President Finance, Corporate Controller. From 1993
to 1998, Mr. Golato was Vice


                                       23
<PAGE>

President and Chief Financial Officer of RF Power Products, Inc., a publicly
traded company in the semiconductor industry.

      William Lederman has been Chief Operating Officer of the Company since
December 1998. From 1996 to 1998, Mr. Lederman was the Chief Operating Officer
of Solgar Vitamin & Herb Company, Inc., a leading manufacturer of vitamins and
nutritional products. From 1995 to 1996, he was the Vice President of Operations
of Solgar. From 1991 to 1995, he was Vice President of Operations at Pharmline,
Inc., a leading vitamin raw material supplier.

      Michael A. Durso has been Senior Vice President of Sales and Marketing of
the Company since September 1998. From 1997 to 1998, he was Director of Sales at
Pharmaceutical Formulations, Inc., a manufacturer and distributor of private
label, over the counter products. From 1995 to 1997, he was Director of Sales
and Merchandising at Pathmark Stores, Inc. From 1993 to 1995 he was Director of
Category Management at Pathmark Stores, Inc.

      Jesus Febus has been Chief Information Officer and Senior Vice President
of Information Technologies of the Company since August 1999. From 1998 to 1999,
he was Vice President of Information Technologies of the Company and from 1997
to 1998 he was Director of Information Technologies of the Company. Prior to
joining the Company, he was a Systems Manager for Materials Research
Corporation, a division of Sony Corporation, from 1996 to 1997 and a Senior
Project Manager for Kuehne & Nagel, Inc., an international freight forwarding
company, from 1995 to 1996. From 1989 to 1995, he was a Systems Manager for
Lever Brothers Company, a major manufacturer of consumer products.

      John H. Dettra Jr. has been Senior Vice President Operations/Manufacturing
Systems since the merger with Hall in 1996. Prior to that he was Senior Vice
President Operations of Hall Laboratories Inc. from 1987-1996.

      Arthur S. Edell has been on IVC's Board of Directors since 1989. He was
President of the Company from 1989 to 1998. The brother of E. Joseph Edell, he
has over 40 years of experience in the vitamin, pharmaceutical and health food
industries in all facets of production, distribution and marketing. Since 1979,
Mr. Edell has owned Healthfair Vitamin Centers, Inc., a company which operates
two health food stores in New Jersey. Mr. Edell was a 50% owner of Hitex
Investments, Inc., a vitamin manufacturing company, from 1974 to 1979, and was a
50% owner of American Vitamin from 1955 to 1975. In March 1995, Mr. Edell was
involved in a fatal automobile accident. In connection with the accident, Mr.
Edell pleaded guilty to a single count of vehicular homicide and received a five
year suspended sentence.

      Marc Z. Edell has been on IVC's Board of Directors since 1996. He is an
attorney who has been practicing law in New York and New Jersey for the past
twenty years. He has been a Partner of Edell and Associates, a Morristown, NJ
law firm, since 1995. From 1985 through 1995, Mr. Edell was a Partner with Budd
Larner Gross in Short Hills, NJ. Mr. Edell is the son of E. Joseph Edell.

      Dr. Mark S. Gold has been on IVC's Board of Directors since 1996. He is a
Professor at the University of Florida Brain Institute. Dr. Gold is a medical
researcher, author and inventor. He was previously a Resident, Chief Resident
and Faculty Member at the Yale University


                                       24
<PAGE>

School of Medicine, and has written over 500 scientific publications and
numerous professional texts. Dr. Gold also serves on the Board of Directors of
Somerset Valley Bank.

      Dennis E. Groat has been on IVC's Board of Directors since 1996. He is
also a principal of Groat and Associates, a consulting firm. He was President of
Dentalogic, a dental technology business, from 1993 to 1996. From 1989 to 1993
he was President of Denar Corporation, a business specializing in precision
dental instrumentation. Mr. Groat was Chief Operating Officer of Hall
Laboratories from 1984 to 1988. Prior to joining Hall, he held executive
positions with Scherer Healthcare, Inc., R.P. Scherer Corporation and Mead
Johnson Laboratories.

      Erwin Lehr has been on IVC's Board of Directors since January 1999. He was
President, Chief Executive Officer and a director of Valley Fair Corp., a chain
of discount drug stores in New Jersey, and L.F. Widman, Inc., a chain of health,
beauty-aid and drug stores in Pennsylvania, from 1978 to 1998. He also was
Chairman and a director of the Associated Chain Drug Stores.

      Andrew M. Pinkowski has been on IVC's Board of Directors since the merger
with Hall Laboratories Inc. in 1996 and since May 1999, he has served as a
consultant to IVC. From the merger with Hall to May 1999, he served as the Vice
Chairman of the Board of Directors of IVC. He had previously been president and
Chief Executive Officer of Hall since 1970. He joined Hall in 1969 as manager of
marketing. Prior to joining Hall, he held various marketing positions with Boise
Cascade, Sterling Drug and Universal Oil Products.

      David Popofsky has been on IVC's Board of Directors since 1996. He is
currently President of Popofsky Advertising in New York City. He has been the
creative/marketing strategist responsible for the consumer launch of various
leading over-the-counter products. Mr. Popofsky is also the founder of The
Retail Drug Institute at Arnold Marie College of Pharmacy, served as visiting
professor for ten years in their graduate school and on the Board of Overseers
for many years. In addition, he served on the Graduate School faculty of
Columbia University Pharmacy School.

      Directors hold their offices until each annual meeting of the stockholders
and thereafter until their successors have been duly elected and qualified.
Executive officers are elected by the Board of Directors on an annual basis and
serve at the discretion of the Board or pursuant to employment agreements.

Compliance with Section 16(a) of the Exchange Act

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors to file reports of ownership with
the Securities and Exchange Commission ("SEC") and with NASDAQ. The Company
believes that its executive officers and Directors have complied with all
applicable Section 16(a) filing requirements. This conclusion is based solely on
a review of such forms furnished to the Company in accordance with SEC
regulations and on representations from its executive officers and directors.


                                       25
<PAGE>

Item 11 Executive Compensation

      The following table sets forth all compensation paid or distributed during
the years ended July 31, 1999, 1998 and 1997 by the Company for services
rendered by (i) the Chief Executive Officer of IVC, (ii) the four most highly
compensated executive officers of the Company who were serving as executive
officers at the end of the last fiscal year and (iii) Alan Hirschfeld and Andrew
Pinkowski, former executives of IVC, who would have been two of IVC's four most
highly compensated executive officers but for the fact that they were not
serving as executive officers at the end of IVC's last fiscal year.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                  Long-Term
                                                                                    Awards      Compensation
                                                     Annual Compensation            ------
                                                     -------------------          Securities        All
                                                                                  Underlying       Other
         Name and                                  Salary             Bonus        Options      Compensation
    Principal Position                 Year          ($)               ($)         (Shares)       ($) (1)
    ------------------                 ----          ---               ---         --------       -------
<S>                                    <C>         <C>                <C>           <C>           <C>
E. Joseph Edell                        1999        295,432              -             -              -
Chairman, Chief Executive Officer      1998        442,307              -             -              -
And President                          1997        500,000              -             -              -

Domenic N. Golato                      1999        132,596              -           23,750          500
Vice President, Chief Financial        1998         16,153              -             -              -
Officer  and Secretary

William Lederman                       1999         87,019            25,000        12,500          360
Chief Operating Officer

Michael Durso                          1999        130,411              -           25,625          500
Senior Vice President
of Sales and Marketing

Jesus Febus                            1999        119,885              -           18,875            -
Chief Information Officer and
Senior Vice President of
Information Technologies               1998         91,730              -              250             -

I. Alan Hirschfeld                     1999        147,249              -             -             336
Former Executive Vice                  1998        221,153              -             -           1,528(2)
President and Chief                    1997        250,000              -           50,000        1,528(2)
Financial Officer

Andrew M. Pinkowski                    1999         90,962              -             -             550
Former Vice Chairman                   1998        159,230              -             -             500
                                       1997        180,000              -             -             500
</TABLE>

(1)   Unless otherwise noted, represents the value of shares granted under the
      401(k) Savings Plan.

(2)   Represents term life insurance premiums and the value of shares granted
      under the 401(k) Savings Plan.

      No other annual compensation, stock appreciation rights, long-term
restricted stock awards, or long-term incentive plan payouts were awarded to,
earned by, or paid to the named executive officers during any of the Company's
last three fiscal years.


                                       26
<PAGE>

Non-employee Director Stock Option Plan

      The Company's Non-Employee Directors' Stock Option Plan provides for the
grant as of September 1 of each year of an option to purchase 1,250 shares of
IVC Common Stock to each of IVC's non-employee directors. On March 10, 1999, the
Board of Directors unanimously approved, subject to shareholder approval, the
grant to each of IVC's non-employee directors of an option to purchase 1,875
shares of IVC Common Stock at an exercise price of $7.52 and an amendment to the
Non-Employee Directors' Stock Option Plan, to provide that as of September 1 of
each year commencing with 1999, each non-employee director be granted an option
to purchase 3,125 shares of IVC Common Stock. The exercise price of each option
is the fair market value of IVC Common Stock at the time the option is granted.


                                       27
<PAGE>

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                          Number of    Percent of                                Potential Realizable Value
                         Securities   Total Options                              at Assumed Annual Rates of
                         Underlying    Granted to     Exercise                  Stock Price Appreciation for
                           Options    Employees in      Price      Expiration           Option Term
    Name                 Granted (#)   Fiscal Year     ($/Sh)         Date          5% ($)       10% ($)
    ----                 -----------   -----------     ------         ----          ------       -------
<S>                        <C>              <C>         <C>         <C>             <C>         <C>
Domenic N. Golato             625           *            8.00       11/05/08         3,100        8,000
                            3,125           1%           7.04       11/24/08        13,800       35,100
                           20,000           8%           4.63       07/30/09        58,200      147,600

William Lederman           12,500           5%           7.04       11/24/08        55,300      140,200

Michael Durso              12,500           5%          11.52       10/01/08        90,600      229,500
                              625           *            8.00       11/05/08         3,100        8,000
                            6,250           3%           7.52       03/10/09        29,600       74,900
                            6,250           3%           5.52       07/01/09        21,700       55,000

Jesus Febus                   625           *            8.00       11/15/08         3,100        8,000
                            6,250           3%           7.04       11/24/08        27,700       70,100
                           12,000           5%           4.63       07/30/09        34,900       88,500
</TABLE>

---------------------
*     Less than 1%.

                          FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                    Number of Securities             Value of Unexercised
                                   Underlying Unexercised                In-the-Money
                                 Options At Fiscal Year-End      Options at Fiscal Year-End (1)
                                 --------------------------      ------------------------------
                Name            Exercisable     Unexercisable    Exercisable    Unexercisable
                ----            -----------     -------------    -----------    -------------
        <S>                        <C>             <C>                <C>              <C>
        Domenic N. Golato          2,187           21,563             --               --

        William Lederman             --            12,500             --               --

        Michael Durso                625           25,000             --               --

        Jesus Febus                4,000           15,125             --               --

        I. Alan Hirschfeld         6,250              --              --               --
</TABLE>

(1)   The fair market value of the Company's Common Stock on July 30, 1999
      ($4.63 per share) minus the exercise price.

      None of the named executive officers exercised options during the fiscal
      year ended July 31, 1999.


                                       28
<PAGE>

Employment Agreements

      E. Joseph Edell is employed as the Chairman and Chief Executive Officer of
IVC pursuant to an employment agreement dated as of April 28, 1996 and amended
as of February 1, 1998. Mr. Edell's employment agreement provides for a base
salary of $312,500 for the period of February 1, 1998 through January 31, 1999
and $343,750 for the period of February 1, 1999 through January 31, 2000. The
employment agreement also provides that on each January 31 during Mr. Edell's
term of employment, he shall be entitled to performance-based bonus compensation
in an amount equal to the sum of (i) Mr. Edell's base salary on such January 31
multiplied by (ii) the percentage increase, if any, in the income before income
taxes of the Company for the 12-month period ended on such January 31 over the
income before income taxes of the Company for the 12-month period ended the
prior January 31. No bonus compensation was paid to Mr. Edell for the 12-month
period ended January 31, 1999. The employment agreement also provides that the
Company may, in its discretion, grant Mr. Edell's options to purchase shares of
IVC Common Stock pursuant to the Company's 1995 Stock Option Plan. Mr. Edell was
not awarded stock options during the year ended July 31, 1999. The term of his
employment agreement ends on January 31, 2000 and is automatically extended for
successive one-year periods unless the Company or Mr. Edell gives three months'
notice that they elect 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 shall receive a severance payment equal to his base annual
salary, provided that no severance payment shall be required in the event that
Mr. Edell retires. The Board of Directors, at its discretion, may increase Mr.
Edell's base annual salary if the term is extended. In the event the Company
terminates without cause the employment of Mr. Edell, he shall receive a
severance payment equal to the remaining salary due under the unexpired term of
his agreement, plus one year's base salary. The agreement contains
confidentiality and non-disclosure provisions.

      Jesus Febus is employed as Chief Information Officer and Senior Vice
President of Information Technologies of IVC pursuant to an employment agreement
dated as of November 30, 1998 and amended as of July 26, 1999. Mr. Febus'
employment agreement provides for a base salary of $125,000 for the year ending
November 29, 1999. Thereafter, Mr. Febus shall receive $147,500 per annum. The
employment agreement also provides that Mr. Febus will be entitled to receive
options to purchase shares of IVC Common Stock pursuant to the Company's 1995
Stock Option Plan. Mr. Febus was awarded options to purchase 18,875 shares of
Common Stock during the year ended July 31, 1999. The term of his employment
agreement ends on November 30, 2000 and is automatically extended for successive
two-year periods unless sooner terminated by the Company or Mr. Febus. In the
event the Company terminates without cause the employment of Mr. Febus, he shall
receive a severance payment equal to one year's base salary. The agreement
contains confidentiality and non-disclosure provisions.

      Under the terms of the employment agreement between the Company and Andrew
M. Pinkowski dated April 30, 1996, as amended as of February 1, 1998, Mr.
Pinkowski's employment with the Company ended April 30, 1999. The agreement
provides that following the expiration of the term of employment, Mr. Pinkowski
shall serve as a consultant to the Company for a term of five years at $80,000
per annum. The agreement further provides that the Company may, in its
discretion, grant Mr. Pinkowski options to purchase shares of IVC Common Stock
pursuant to the Company's 1995 Stock Option Plan. Mr. Pinkowski was not awarded
stock options during the year ended July 31, 1999. The agreement contains
confidentiality and non-disclosure provisions.


                                       29
<PAGE>

The Company entered into a severance agreement with I. Alan Hirschfeld,
effective as of March 1, 1999. Under the agreement Mr. Hirschfeld resigned as an
officer and director of the Company. The agreement provides for a severance
payment of $90,000 payable over one year commencing March 1, 2001. The agreement
also provides that Mr. Hirschfeld remain a consultant to the Company for a term
of three years beginning March 1, 1999 at $96,000 per annum for the first and
second year and $9,000 for the third year. Under the agreement, Mr. Hirschfeld
covenants not compete with the Company during such consulting period. In
consideration for such covenant not to compete, the Company agreed to pay Mr.
Hirschfeld $75,000 for the first and second year of the consulting period and
$9,000 for the third year of the consulting period. The agreement further
provides that the options granted to Mr. Hirschfeld under the 1995 Stock Option
Plan will remain exercisable during the three year consulting period. The
agreement provides for certain medical benefits and for the reimbursement of
certain expenses, and contains mutual releases and confidentiality and
non-disclosure provisions.

Compensation Committee Interlocks and Insider Participation

      The members of the Compensation Committee for the fiscal year ended July
31, 1999 were Dr. Mark S. Gold, Dennis E. Groat (Chairman) and David Popofsky.
There were no interlocks or insider participation as defined in the Securities
and Exchange Commission's Regulation S-K.

Compensation Committee Report on Executive Compensation

      The responsibilities of the Compensation Committee include administering
the Company's 1995 Stock Option Plan and fixing the compensation, including
salaries and bonuses, of all officers of the Company.

      Overall Policy

      The Compensation Committee believes that the Company's officers are
largely responsible for the Company's success. Based on this belief, during 1998
the Compensation Committee revised its compensation program for the Company's
executive officers to reduce each executive's base salary and provide for bonus
compensation based on the Company's performance and for the granting of stock
options in order to link a portion of executive compensation to appreciation of
the Company's stock price (see "Employment Agreements"). The objectives of this
strategy are to attract and retain effective and highly qualified executives, to
motivate executives to achieve the goals inherent in the Company's business
strategy and to link executive and shareholder interest through stock options.

      Base Salaries

      Annual base salaries for the officers are determined by evaluating the
performance of the individuals and their contributions to the performance of the
Company and are based on the recommendation of E. Joseph Edell as Chief
Executive Officer. Financial results, as well as non-financial measures such as
the magnitude of responsibility of the position, individual experience, and the
Compensation Committee's knowledge of compensation practices for comparable
positions at other companies are considered.

      The compensation paid to the Company's Chief Executive Officer, E. Joseph
Edell, for the year ended July 31, 1999 consisted solely of base salary and was
established pursuant to his


                                       30
<PAGE>

employment agreement with the Company. The terms of the agreement are described
in detail on page 29 of this report.

      Long-Term Incentives

      Under the 1995 Stock Option Plan, stock options may be granted to
executives of the Company. Stock options are designed to focus the executives'
attention on stock values and to align the interests of executives with those of
the shareholders. Stock options are generally granted at prices equal to the
fair market value at the date of grant, or 110% of such value with respect to
grants to executives who own more than 10% of the Common Stock of the Company,
and are not exercisable until six months after the date of the grant. The
options generally remain exercisable during employment until the tenth
anniversary of the date of the grant or five years with respect to grants to
executives who own more than 10% of the Common Stock. This approach provides an
incentive to executives to increase shareholder value over the long term since
the full benefit of the options cannot be realized unless stock price
appreciation occurs over a number of years.

                             Compensation Committee

                                Dr. Mark S. Gold
                           Dennis E. Groat (Chairman)
                                 David Popofsky


                                       31
<PAGE>

                                PERFORMANCE GRAPH

      The following performance graph is a line graph comparing the yearly
change in the cumulative total shareholder return on the Company's Common Stock
against the cumulative return of the Nasdaq Composite Index and the S&P Health
Care - Drugs Index for each of the fiscal years ended July 31, 1995 through
1999.

The following table was represented as a line graph in the printed material.

                       Value of $100 investment

<TABLE>
<CAPTION>
   Date       IVC Industries, Inc.      NASDAQ Composite       S&P Health Care - Drugs Index
                                            Index
<S>                   <C>                    <C>                           <C>
31-Jul-94             100                    100                           100
31-Jul-95              75                    139                           163
31-Jul-96              81                    150                           214
31-Jul-97              56                    221                           355
31-Jul-98              54                    259                           505
31-Jul-99              17                    365                           511
</TABLE>


                                       32
<PAGE>

Item 12 Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information regarding shares of IVC
Common Stock beneficially owned by (i) each person or group, known to the
Company, who beneficially owns more than 5% of IVC Common Stock, (ii) each of
the Company's directors, (iii) each executive officer named in the summary
compensation table in Item 11 hereto, and (iv) all officers and directors as a
group as of October 1, 1999.

<TABLE>
<CAPTION>
                       Name and Address of                          Number of     Percentage
 Title of Class        Beneficial Owner                              Shares        of Class
 --------------        ----------------                              ------        --------
<S>                    <C>                                          <C>              <C>
    Common             E. Joseph Edell (1)                          669,805          32.1%
                       c/o IVC Industries, Inc.
                       500 Halls Mill Road
                       Freehold, NJ 07728

    Common             Domenic Golato (2)                             3,750           *
                       c/o IVC Industries, Inc.
                       500 Halls Mill Road
                       Freehold, NJ 07728

    Common             William Lederman (2)                           6,250           *
                       c/o IVC Industries, Inc.
                       500 Halls Mill Road
                       Freehold, NJ 07728

    Common             Michael Durso (2)                             11,042           *
                       c/o IVC Industries, Inc.
                       500 Halls Mill Road
                       Freehold, NJ 07728

    Common             Jesus Febus (2)                                7,125           *
                       c/o IVC Industries, Inc.
                       500 Halls Mill Road
                       Freehold, NJ 07728

    Common             Andrew M. Pinkowski (3)                      328,509          15.7%
                       c/o IVC Industries, Inc.
                       3580 N.E. Broadway
                       Portland, OR  97232

    Common             I. Alan Hirschfeld (4)                       239,088          11.5%
                       14 Malke Drive
                       Ocean, NJ  07712

    Common             Arthur S. Edell (5)                          231,436          11.1%
                       c/o IVC Industries, Inc.
                       500 Halls Mill Road
                       Freehold, NJ 07728

    Common             Marc Z. Edell (6)                             13,975           *
                       c/o Edell & Associates
                       1776 On the Green
                       Morristown, NJ 07962
</TABLE>


                                       33
<PAGE>

<TABLE>
<CAPTION>
                       Name and Address of                          Number of     Percentage
 Title of Class        Beneficial Owner                              Shares        of Class
 --------------        ----------------                              ------        --------
<S>                    <C>                                        <C>                <C>
    Common             Dr. Mark S. Gold (2)                           5,625           *
                       2002 San Marco Boulevard
                       Jacksonville, FL 32207

    Common             Dennis E. Groat (2)                            5,625           *
                       c/o Groat & Associates
                       411 Lonestar Lane
                       Lindale, TX 75771

    Common             David Popofsky (2)                             5,625           *
                       c/o Popofsky Advertising
                       60 Madison Avenue
                       New York, NY 10010

    Common             Erwin Lehr (2)                                 2,500           *
                       156 Clarkin Drive
                       West Orange, NJ  07052

    Common             All Executive Officers and Directors
                         as a group (13 persons) (7)              1,502,187          71.9%
</TABLE>

* Less than 1%

(1)   Includes 75,177 shares owned by Beverlee Edell, the wife of E. Joseph
      Edell. Mr. Edell disclaims beneficial ownership of the shares owned by his
      wife.

(2)   Represents shares issuable upon exercise of stock options that are
      presently exercisable or exercisable within 60 days of the date of this
      report.

(3)   Includes 117,981 shares owned by his wife. Mr. Pinkowski disclaims
      beneficial ownership of the shares owned by his wife.

(4)   Includes 6,250 shares issuable upon exercise of stock options, 22,484
      shares owned by Susan H. Hirschfeld, the wife of I. Alan Hirschfeld, 3,900
      shares owned by Mr. Hirschfeld's minor children, and 15,000 shares owned
      by Two Seas Ventures, a family partnership. Mr. Hirschfeld disclaims
      beneficial ownership of the shares owned by his wife and children.

(5)   Includes 28,125 shares issuable upon exercise of stock options and 187,500
      shares owned by the Edell Family Partnership.

(6)   Includes 5,625 shares issuable upon exercise of stock options that are
      presently exercisable or exercisable within 60 days of this report.

(7)   Includes 87,542 shares issuable upon the exercise of stock options held by
      all executive officers and directors that are presently exercisable or
      exercisable within 60 days of this report.


                                       34
<PAGE>

Item 13 Certain Relationships and Related Transactions

Loans, Guarantees and Advances

      Prior to fiscal 1994, Arthur S. Edell loaned the Company $250,000. The
loan balance at July 31, 1998 was $80,000. This loan was paid in full during the
fiscal year 1999.


      From time to time the Company has made advances to E. Joseph Edell and I.
Alan Hirschfeld. Such advances bear interest at 5% per annum. At July 31, 1999,
the aggregate net advances to E. Joseph Edell and I. Alan Hirschfeld were
$366,000 and $140,000, respectively. The balance due the Company by E. Joseph
Edell is payable by July 31, 2000 and the balance due the Company by I. Alan
Hirschfeld is payable in three successive annual installments commencing March
1, 2004.

Other Matters

      The Company routinely sells its products on arm's-length terms to
Healthfair Vitamin Centers, Inc., a company wholly owned by Arthur S. Edell and
Ethel Edell. The Company's sales to Healthfair Vitamin Centers for the years
ended July 31, 1999, 1998 and 1997 were $63,000, $104,000 and $169,000,
respectively.

      The Company periodically sells its products on arm's-length terms to
D.N.R. Inc., a company located in Israel. A principal shareholder of D.N.R. Inc.
is the brother-in-law of the former President of the Company's International
Division. The Company's sales to D.N.R. Inc. for the years ended July 31, 1999,
1998 and 1997 were approximately $128,000, $131,000, and $313,000, respectively.

      The Company paid approximately $112,000, $42,000 and $0 in 1999, 1998 and
1997, respectively, for legal services provided to the Company by Edell &
Associates. Marc Z. Edell is a principal of Edell & Associates and also a
Director of the Company.

      The Company holds a contract receivable, due in January 2012, from Agora
Holding Company ("Agora"), a partnership consisting of Andrew M. Pinkowski and
certain previous shareholders of Hall in the amount of $813,000 and $850,000, as
at July 31, 1999 and 1998, respectively. Interest income earned by the Company
on this contract was $74,000, $78,000 and $80,000 for the years ended July 31,
1999, 1998 and 1997, respectively. The Company leases its manufacturing and
administration facility in Portland, Oregon from Agora. Rent expense incurred by
the Company for this property was $170,000, $169,000 and $163,000 for the years
ended July 31, 1999, 1998 and 1997, respectively. The above sales and rentals
were made on terms no less favorable to the Company than could be obtained from
non-related parties.


                                       35
<PAGE>

                                     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

            See "Item 8. Financial Statements and Supplementary Data"

      (2)   Financial Statement Schedules

            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         Restated Certificate of Incorporation of IVC Industries,
                    Inc.

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

        4.1         Common Stock Specimen

        10.1        Amended and Restated Credit Agreement, dated as of July 31,
                    1999, among IVC Industries, Inc., the Banks party thereto
                    and The Chase Manhattan Bank (National Association), as
                    Agent (2)

        10.2        Registration Rights Agreement, dated April 30, 1996, among
                    IVC Industries, Inc., Andrew M. Pinkowski, Rita Pinkowski,
                    Vicki Welsh Jones, The Amelia Welsh Jones Trust, under a
                    Trust Agreement dated June 4, 1993, Lawrence A. Newman,
                    Duane Baxter, Peter W. Schreiber, John H. Dettra, Jr. And
                    Larry Corbridge (1)

        10.3        Agreement, dated as of June 2, 1998, by and between IVC
                    Industries, Inc. and The Navesink Group (3)

        10.4        Lease Agreement between The Navesink Group and IVC
                    Industries, Inc. (3)

        10.5        Settlement Agreement, dated September 17, 1999 with Hoffman
                    La-Roche Inc. and Roche Vitamins Inc. (4)

        10.6        Employment Agreement with E. Joseph Edell (5)

        10.7        Amendment to Employment Agreement with E. Joseph Edell (3)

        10.8        Employment Agreement with Jesus Febus


                                       36
<PAGE>

        (A) Documents Included as Part of This Report - (Continued)

        10.9        Severance Agreement with Arthur S. Edell (3)

        10.10       Severance Agreement with I. Alan Hirschfeld

        10.11       International Vitamin Corporation 1993 Stock Option Plan (6)

        10.12       International Vitamin Corporation 1995 Stock Option Plan (7)

        10.13       Non-Employee Directors' Stock Option Plan (8)

        11          Earnings Per Share Computation (Page E-1)

        27.1        Financial Data Schedule

Foot Notes
----------

      (1)   Incorporated herein by reference from the Form 8-K filed on May 14,
            1996, as amended on August 9, 1996.

      (2)   Incorporated herein by reference from the Form 8-K filed on October
            1, 1999.

      (3)   Incorporated herein by reference from Form 10-K filed by the Company
            for the year ended July 31, 1999.

      (4)   Incorporated herein by reference from the Form 8-K filed on
            September 24, 1999.

      (5)   Incorporated herein by reference from Form 10-QSB filed by the
            Company for the quarterly period ended April 30, 1995.

      (6)   Incorporated herein by reference from the Registration Statement
            number 33-73406 filed by the Company on Form SB-2.

      (7)   Incorporated herein by reference from the Company's Proxy Statement
            and Annual Report to Shareholders, dated March 5, 1996.

      (8)   Incorporated herein by reference from the Company's Proxy Statement
            for Annual Meeting of Shareholders, filed on March 26, 1998.

      *     Confidential Information indicated by X's has been omitted and filed
            separately with the Securities and Exchange Commission.


                                       37
<PAGE>

(B)   Reports on Form 8-K

      A report on Form 8-K was filed on July 14, 1999 with respect to Item 5,
      Other Events.

      A report on Form 8-K was filed on July 28, 1999 with respect to Item 2,
      Acquisition or Disposition of Assets.


                                       38
<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 28, 1999                       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.

<TABLE>
<CAPTION>
        Signature                           Title                               Date
        ---------                           -----                               ----
<S>                                 <C>                                 <C>
/s/ E. Joseph Edell                 Chairman of the Board of            October 28, 1999
-----------------------------       Directors Chief Executive           ----------------
E. Joseph Edell                     Officer and President


/s/ Domenic N. Golato               Vice President, Chief Financial     October 28, 1999
-----------------------------       Officer and  Secretary              ----------------
Domenic N. Golato

/s/ Andrew M. Pinkowski             Director                            October 28, 1999
-----------------------------                                           ----------------
Andrew M. Pinkowski

/s/ Arthur S. Edell                 Director                            October 28, 1999
-----------------------------                                           ----------------
Arthur S. Edell

/s/ Dennis E. Groat                 Director                            October 28, 1999
-----------------------------                                           ----------------
Dennis E. Groat
</TABLE>


                                       39
<PAGE>

<TABLE>
<S>                                 <C>                                 <C>
/s/ David Popofsky                  Director                            October 28, 1999
-----------------------------                                           ----------------
David Popofsky

/s/ Dr. Mark S. Gold                Director                            October 28, 1999
-----------------------------                                           ----------------
Dr. Mark S. Gold

/s/ Marc Z. Edell                   Director                            October 28, 1999
-----------------------------                                           ----------------
Marc Z. Edell

/s/ Erwin Lehr                      Director                            October 28, 1999
-----------------------------                                           ----------------
Erwin Lehr
</TABLE>


                                       40
<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, 1998 and 1999 and the related consolidated
statements of operations, cash flows and shareholders' equity for each of the
years ended July 31, 1997, 1998 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 generally accepted auditing
standards. 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, 1998 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended July 31, 1999
in conformity with generally accepted accounting principles.

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 15, 1999
Edison, New Jersey


                                      F-1
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             JULY 31, 1998 AND 1999
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                                                              Unaudited
                            ASSETS                                                             Proforma
                                                                                             (see note 16)
                                                                     1998          1999          1999
                                                                   --------      --------      --------
<S>                                                                <C>           <C>           <C>
Current Assets:
    Cash and cash equivalents                                      $  1,604      $    287      $  1,545
    Accounts receivable                                              11,725         7,296         7,296
    Inventories                                                      37,389        27,374        27,374
    Due from related parties                                             95            26            26
    Deferred taxes                                                    2,238         4,673         4,673
    Prepaid expenses                                                  2,006           671           671
    Refundable income taxes                                              --         2,117         2,117
    Other current assets                                                979           483           483
                                                                   --------      --------      --------
        Total Current Assets                                         56,036        42,927        44,185

Property, Plant and Equipment - Net                                  20,766        19,839        19,839

Due from related parties                                              1,876         1,313         1,313
Goodwill - Net                                                        1,773            --            --
Other Assets                                                            803         1,162         1,162
                                                                   --------      --------      --------

    Total Assets                                                   $ 81,254      $ 65,241      $ 66,499
                                                                   ========      ========      ========
           LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
    Current portion of long-term debt                              $ 22,749      $  2,697      $  2,697
    Current portion of capital lease payable                            134           180           180
    Current portion of deferred gain on building                         97           104           104
    Accounts payable                                                 25,504        14,785         9,842
    Accrued expenses                                                  3,003         4,896         4,896
    Income taxes payable                                                 --            --         3,800
                                                                   --------      --------      --------
        Total Current Liabilities                                    51,487        22,662        21,519

    Long-Term Debt - less current portion                             7,271        27,898        21,398
    Capital lease obligation                                          3,317         3,136         3,136
    Deferred gain on building sale                                    1,109         1,005         1,005
    Deferred taxes                                                      211            --            --
    Other Liabilities                                                    99            --         2,700
                                                                   --------      --------      --------
         Total Liabilities                                           63,494        54,701        49,758
                                                                   --------      --------      --------

Shareholders' Equity:
    Preferred stock, no par, 2,000,000 shares authorized                 --            --            --
    Common stock, $.08 par value, 25,000,000 shares
      authorized; 2,088,092 and 2,151,469 issued, respectively          172           167           167
    Additional paid-in capital                                       11,673        11,499        11,499
    Foreign currency translation adjustment                            (202)         (202)         (202)
    Retained earnings (Deficit)                                       6,117          (924)        5,277
                                                                   --------      --------      --------
        Total Shareholders' Equity                                   17,760        10,540        16,741
                                                                   --------      --------      --------

Total Liabilities and Shareholders' Equity                         $ 81,254      $ 65,241      $ 66,499
                                                                   ========      ========      ========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-2
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED JULY 31, 1997, 1998 AND 1999
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                     1997            1998            1999
                                                 -----------     -----------     -----------
<S>                                              <C>             <C>             <C>
Net sales                                        $   108,531     $   119,775     $   107,339

Cost of sales                                         80,480          91,256          81,189
                                                 -----------     -----------     -----------

Gross profit                                          28,051          28,519          26,150

Selling, general and administrative expenses          23,628          25,035          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                          4,423           3,484          (8,502)

Other expenses, net                                    1,639           1,572           2,429
                                                 -----------     -----------     -----------

Income (loss)  before income taxes                     2,784           1,912         (10,931)

Income tax expense (benefit)                           1,438             765          (3,890)
                                                 -----------     -----------     -----------

Net income (loss)                                $     1,346     $     1,147     $    (7,041)
                                                 ===========     ===========     ===========

Net income (loss) per share - Basic              $       .63     $       .54     $     (3.28)
                                                 ===========     ===========     ===========

Net income (loss) per share - Diluted            $       .63     $       .53     $     (3.28)
                                                 ===========     ===========     ===========

Weighted average shares - Basic                    2,136,394       2,143,191       2,148,143

Weighted average shares - Diluted                  2,141,347       2,154,365       2,148,909
</TABLE>

                 See notes to consolidated financial statements.


                                      F-3
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED JULY 31, 1997, 1998 AND 1999
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                                        1997          1998          1999
                                                                      --------      --------      --------
<S>                                                                   <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                   $  1,346      $  1,147      $ (7,041)
                                                                      --------      --------      --------
  Adjustments to Reconcile Net Income to Net Cash Provided
    By (Used In) Operating Activities:
    Depreciation                                                         2,105         2,464         2,208
    Amortization                                                            21           130           162
    Deferred income taxes provision (benefit)                             (321)          156        (3,216)
    Stock distributed to Employee Savings Plan                              63           226            --
    Stock options issued to non-employee directors                          38            55           138
    (Gain) loss on sale of assets                                         (138)         (683)        2,343
    Changes in assets - (increase) decrease:
      Accounts receivable                                                7,940        (3,445)        4,429
      Inventories                                                       (5,140)       (6,204)        8,781
      Prepaid expenses and other current assets                           (506)         (664)          895
      Other assets                                                        (398)        1,196           801
    Changes in liabilities - increase (decrease):
      Accounts payable and accrued expenses                             (3,968)        9,847        (9,326)
                                                                      --------      --------      --------
        Total adjustments                                                 (304)        3,078         7,215
                                                                      --------      --------      --------
      Net Cash Provided By Operating Activities                          1,042         4,225           174
                                                                      --------      --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for notes receivable                                           (568)           56            --
  Additions to property, plant and equipment                            (1,120)       (3,715)       (1,614)
  Proceeds from sale of assets                                             138         3,874            --
  Purchase of retail subsidiary                                         (2,800)          (86)           --
  Retirement of Common Stock                                                --            --          (317)
                                                                      --------      --------      --------
        Net Cash Provided By (Used In) Investment Activities            (4,350)          129        (1,931)
                                                                      --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on long-term debt - net                           (33,936)       (6,343)       (3,605)
  Proceeds from long-term debt                                          37,074         3,500         4,180
  Acquisition of treasury shares                                           (54)           --            --
  Principle Payments on Capital Lease                                       --            --          (135)
                                                                      --------      --------      --------
        Net Cash Provided By (Used In) Financing Activities              3,084        (2,843)          440
                                                                      --------      --------      --------
  Foreign currency translation adjustment                                  (17)          (86)           --
                                                                      --------      --------      --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      (241)        1,425        (1,317)
CASH AND CASH EQUIVALENTS - BEGINNING                                      420           179         1,604
                                                                      --------      --------      --------
CASH AND CASH EQUIVALENTS - ENDING                                    $    179      $  1,604      $    287
                                                                      ========      ========      ========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-4
<PAGE>

                                          1997       1998       1999
                                         ------     ------     ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION
Cash paid during the period for:
  Interest                               $2,075     $2,210     $2,466
                                         ======     ======     ======
  Taxes                                  $  811     $1,436     $  682
                                         ======     ======     ======

Non Cash Financing and Investing Activities

During the year ended July 31, 1998, the Company entered into a capital lease
obligation for building in the amount of $3,451.

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, 1997, 1998 and 1999
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                                                                                Foreign
                                    Common        Treasury                           Additional    Retained     Currency
                                    Stock          Stock      Common      Treasury    Paid-In      Earnings     ranslation
                                   (Shares)       (Shares)     Stock       Stock      Capital      (Deficit)    Adjustment   Total
                                   --------       --------     -----       -----      -------      ---------    ----------   -----
<S>                              <C>           <C>          <C>         <C>         <C>         <C>            <C>         <C>
Balance - July 31, 1996            2,136,869          --         171          --      11,345          3,624         (99)    15,041

Purchase of treasury shares               --      (4,000)         --         (54)         --             --          --        (54)

Issuance of shares to employee
  benefit plan                         4,081          --          --          --          63             --          --         63

Issuance of options to
non-employee Directors                    --          --          --          --          38             --          --         38

Net income                                --          --          --          --          --          1,346          --      1,346

Foreign currency translation
  adjustment                              --          --          --          --          --             --         (17)       (17)
                                 -----------   ---------    --------    --------    --------    -----------    --------    -------

Balance - July 31, 1997            2,140,950      (4,000)        171         (54)     11,446          4,970        (116)    16,417

Issuance of treasury shares to
  employee benefit plan                   --       4,000          --          54          --             --          --         54

Issuance of shares to employee
  benefit plan                        10,519          --           1          --         172             --          --        173

Issuance of options to non-
  employee Directors                      --          --          --          --          55             --          --         55

Net income                                --          --          --          --          --          1,147          --      1,147

Foreign currency translation
  adjustment                              --          --          --          --          --             --         (86)       (86)
                                 -----------   ---------    --------    --------    --------    -----------    --------    -------

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-employee Directors                    --          --          --          --         138             --          --        138

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

Foreign currency translation
adjustment                                --          --          --          --          --             --          --         --
                                 -----------   ---------    --------    --------    --------    -----------    --------    -------
Balance - July 31, 1999          $ 2,088,092   $      --    $    167    $     --    $ 11,499    $      (924)   $   (202)   $10,540
                                 ===========   =========    ========    ========    ========    ===========    ========    =======
</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 - Organization and Summary of Significant Accounting Policies:

      Organization

      IVC Industries, Inc. (the "Company") is engaged in a single business
      segment - manufacturing, packaging and worldwide sales and distribution of
      vitamins and nutritional supplements through drug stores, supermarkets and
      mass merchandising chains, health food and independent drug stores. Its
      products are distributed under the Fields of Nature, LiquaFil, Rybutol,
      Nature's Wonder, American Vitamin(R), Synergy Plus, Nature's Blend and
      Pine Bros. brands, as well as under the private labels of its retail chain
      store customers. Total sales consist of domestic of 87%, Canadian of 10%
      and other export of 3%.

      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 (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 stockholders' 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.

      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 $461 and $489 in 1998 and 1999,
      respectively, representing deposits held by trustees in connection with
      payments for the current portion of and interest on long-term debt.
      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-7
<PAGE>

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

Note 1 - 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,
      1998 and 1999 the allowance for doubtful accounts was $2,148 and $580,
      respectively.

      Fair Values of Financial Instruments

      Fair values of cash and cash equivalents, accounts receivable, accounts
      payable, short-term borrowings and the current portion of long-term debt
      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 or market. The cost of the
      material component of inventories is determined on the LIFO (last-in,
      first-out) method, which is equal to the FIFO (first-in, first-out)
      method. The labor and overhead components of inventories are determined on
      the FIFO method.

      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 in 1999 and 1998 and over 15 years in
      prior years. The balance of the goodwill was written off in conjunction
      with the sale of the VSC in 1999.


                                      F-8
<PAGE>
                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Dollars in Thousands, Except as Noted or Per Share Information)

Note 1 - Summary of Significant Accounting Policies - (continued):

      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. Also included in other assets in 1998 are the costs associated
      with acquiring long-term sales agreements with certain customers, which
      are being charged to operations over the terms of the individual
      agreements.

      Intangible Assets

      The Company periodically reviews its intangible assets to access
      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, 1997, 1998 and 1999.

      Revenue Recognition

      Revenues are recognized when a product is shipped. Such revenues are
      recorded net of estimated sales returns, discounts and allowances.

      Stock-Based Compensation

      The Company grants stock options for a fixed number of shares to employees
      primarily with an exercise price equal to the fair value of the shares on
      date of grant. The Company accounts for these stock option grants in
      accordance with Accounting Principals Board (APB) Opinion No. 25,
      "Accounting for Stock Issued to Employees", and accordingly, generally
      recognizes no compensation expense for stock options granted at fair
      value. The Company recognizes compensation expense for stock options
      granted with an exercise price below the fair value of the shares on the
      date of grant.


                                      F-9
<PAGE>

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

Note 1 - 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

      The Company retroactively adopted SFAS No. 128, "Earnings Per Share",
      during the fiscal year ended July 31, 1998. This changed the computation,
      presentation and disclosure requirements for earnings per share, and
      requires presentation of "basic" and "diluted" earnings per share. The
      adoption of this statement did not have a material impact on the Company's
      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

      Effective August 1, 1998, the Company adopted the provisions of SFAS No.
      130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
      for reporting and display of comprehensive income and its components in a
      full set of general purpose financial statements. The objective of the
      Statement is to report a measure of all changes in equity of an enterprise
      that result from transactions and other economic events of the period
      other than transactions with owners ("Comprehensive income").
      Comprehensive income is the total of net income and all other non-owner
      changes in equity. The adoption of this statement is not material.


                                      F-10
<PAGE>

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

Note 1 - Summary of Significant Accounting Policies - (continued):

      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, 1997, 1998 and 1999 were $5.6, $4.8 and $7.5
      million, respectively.

      Recent Pronouncements

      In June 1998, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards ("SFAS") No. 133, "Accounting for
      Derivative Instruments and Hedging Activities" which is required to be
      adopted for fiscal quarters of fiscal years beginning after June 15, 2000.
      The Company expects to adopt SFAS No. 133 effective August 1, 2000. This
      statement 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 this statement will have on its financial
      position and results of operations.

Note 2 - Vitamin Specialties Disposition:

      On July 13, 1999, the Company completed the sale of its Vitamin
      Specialties Corp. ("VSC"), subsidiary. Vitamin Specialties is engaged,
      among other things, in the 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 $1.8 million, which will be paid in monthly installments
      equal to 5% of VSC's gross sales until such time as the aggregate payments
      total $1.8 million; provided, however, that for each of the first 36
      months following the closing, the buyer must pay to the Company the
      greater of $10,000 or 5% of VSC's gross sales. The amount in excess of the
      monthly minimum will be recognized when received.

      In addition the selling price includes 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 $2.3 million.

      On June 13, 1997, the Company had acquired VSC's operations from
      HealthRite, Inc. for $2.8 million. The acquisition was accounted for as a
      purchase and accordingly, goodwill of $1.9 million was recorded on the
      books of the Company. The operations of VSC have been included in the
      financial statements since the date of acquisition.


                                      F-11
<PAGE>

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

Note 3 - Details of Balance Sheet:

            Inventories:                                     July 31,
                                                             --------
                                                          1998       1999
                                                          ----       ----
            Finished goods                              $15,129    $ 9,427
            Bulk and work in process                     14,180      9,789
            Raw materials and packaging components        8,080      8,158
                                                        -------    -------
            Total inventory                             $37,389    $27,374
                                                        =======    =======

      The LIFO reserves at July 31, 1998 and 1999, were $0.

            Property, Plant and Equipment:                   July 31,
                                                             --------
                                                          1998       1999
                                                          ----       ----
            Land                                        $ 1,451    $ 1,451
            Buildings and improvements                    6,951      7,936
            Capital lease building                        3,451      3,106
            Leasehold improvements                          721        743
            Machinery and equipment                      18,941     19,518
            Furniture and fixtures                          952        667
            Computer Equipment                            1,929      2,100
            Transportation Equipment                        253        253
                                                        -------    -------
            Sub-Total                                    34,649     35,774

            Accumulated depreciation and amortization   (13,883)   (15,935)
                                                        -------    -------
            Net property, plant and equipment           $20,766    $19,839
                                                        =======    =======

      In July 1998, the Company entered into a sales-leaseback transaction at
      its 569 Halls Mill Road, Freehold, NJ location. In the transaction, the
      Company sold a warehouse/distribution center and undeveloped land, and
      subsequently, the Company entered into a ten-year lease agreement for the
      warehouse/distribution center (see Note 12), which was recorded as a
      capitalized lease. The Company realized a total gain of approximately
      $1,900 of which $1,200 was attributed to the warehouse/distribution center
      and is deferred and will be recognized ratably over the life of the lease
      agreement. The gain of $683 in 1998, attributable to the undeveloped land,
      was recognized and is reflected in other expenses, net.


                                      F-12
<PAGE>

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

Accrued Expenses:                                                  July 31,
                                                                   ------
                                                           1998            1999
                                                          ------          ------

Accrued payroll and related                               $  725          $  884
Accrued interest                                             462             189
Income taxes payable                                         205             381
Accrued for plant shut down                                   --           1,291
Accrued brokerage                                            214             175
Accrued advertising and promotion                            207             310
Accrued severance                                             --             964
Other                                                      1,190             702
                                                          ------          ------

Accrued Expenses                                          $3,003          $4,896
                                                          ======          ======

Note 4 - Long-Term Debt:

                                                                     July 31,
                                                                     --------
                                                               1998        1999
                                                               ----        ----

Notes payable to bank, under revolving line of credit         $18,950    $22,322

Term loan payable to bank, paid March 31, 1999                  2,250         --

Bonds payable, New Jersey Economic Development Authority,
 interest at the floating tax-free rate (3.10 % at
 July 31, 1999), due May 1, 2003                                3,560      2,840

Bonds payable, New Jersey Economic Development Authority,
 interest at 6.90 %, due June 30, 2007                          4,250      3,850

Equipment financing agreement, due August, 2005,
 interest at 7.17% - 8.50%                                        775      1,379

Other                                                             235        204
                                                              -------    -------

Total                                                          30,020     30,595

Less current portion                                           22,749      2,697
                                                              -------    -------

Long-Term Debt - Less current portion                         $ 7,271    $27,898
                                                              =======    =======


                                      F-13
<PAGE>

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

Note 4 - Long-Term Debt - (Continued):

      Notes Payable to Bank

      On April 30, 1996, the Company entered into a credit agreement with a
      bank, which expired on March 31, 1999 and was extended through September
      22, 1999. The Company is allowed to borrow up to $15.0 million under
      borrowing Facility A, and $6.5 million under borrowing Facility B, subject
      to certain borrowing base limitations, as defined. Borrowings under
      Facility A bear interest at either the bank's prime rate plus .50%, or at
      money market rates or applicable LIBOR rates plus 2.25% (7.92% at July 31,
      1998, based on 90 day LIBOR), at the Company's option. Borrowings under
      Facility B bear interest at the bank's prime rate, or at money market
      rates or applicable LIBOR rates plus .50% (6.13% at July 31, 1998, based
      on 120 day LIBOR) at the Company's option. The agreement included a
      commitment fee of .375% of the average daily unused portion of the overall
      borrowing commitment amount relative to Facility A, and .25% relative to
      Facility B. The amount of borrowings allowable under Facility B are
      subject to semi-annual adjustments based upon purchases from a vendor
      during the preceding twelve months. The notes are collateralized by
      substantially all of the Company's assets. The agreement with the bank
      requires the Company to maintain certain financial ratios, minimum working
      capital and contains various restrictions customary in such a financial
      arrangement, including limitations on capital expenditures and payment of
      cash dividends. The Company was in violation of these covenants and were
      amended by the new agreement below.

      Effective September 24, 1999, the Company entered into an amended and
      restated credit agreement with its current bank, Chase Manhattan Bank, and
      Citizens Business Credit Company, a subsidiary of the Royal Bank of
      Scotland to replace the previously existing credit agreement. The
      agreement matures on July 31, 2002. The Company can borrow up to $22
      million under a revolving credit commitment and $5.2 million under a term
      loan commitment, subject to borrowing base limitations, as defined.
      Borrowings under the revolving credit commitment bear interest at either
      the Bank's Alternative Base Rate ("ABR"), (the greatest of the Prime Rate,
      the Federal Funds Rate plus 1/2 of 1% and the Base CD Rate plus 1%) plus a
      spread ranging from 0%-50%, based upon the Company's consolidated leverage
      ratio ("CLR"), (ratio of consolidated funded debt to consolidated EBITDA),
      or LIBOR plus a spread ranging from 2.0% - 2.75% based on the Company's
      CLR. Borrowings under the term loan commitment bear interest at the Bank's
      ABR plus a spread ranging from .25%-.75%, based upon the Company's CLR, or
      LIBOR plus a spread ranging form 2.25%-3.0%, based upon the Company's CLR.
      The term loan requires quarterly payments of $258 at the end of each
      quarter with the balance due on the maturity date. The agreement includes
      a facility fee ranging from .25%-.50%, based upon the Company's CLR, of
      the average daily unused portion of the overall borrowing commitment. The
      notes are collateralized by substantially all of the Company's assets. The
      agreement requires the company to maintain certain financial ratios,
      minimum net worth and contains various restrictions customary in such a
      financial arrangement, including limitations on capital expenditures and
      payment of cash dividends as of July 31, 1999.

      In accordance with Statement of Financial Accounting Standards ("SFAS")
      No. 6 "Classification of Short Term Obligations Expected to be
      Refinanced," the note payable to bank outstanding at July 31, 1999 has
      been classified in accordance with the terms of the new credit agreement.


                                      F-14
<PAGE>

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

      Term Loan Payable to Bank

      On May 1, 1998, the Company entered into a term loan agreement with a
      bank. The interest rate was based upon LIBOR plus .50% or 6.19% on July
      31, 1998. The loan was repaid in full, when due on March 31, 1999.

      Bonds Payable

      The New Jersey Economic Development Authority tax exempt bond issue had an
      outstanding balance of $2,840 as of July 31, 1999. Interest on these bonds
      is payable based upon the weekly tax-free floating rate. The bonds require
      aggregate annual principal payments of $720 (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 1% per annum.

      The bonds payable to the New Jersey Economic Development Authority of
      $3,850 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 $425 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.

      Equipment Financing Agreements

      The equipment financing agreements with two banks provide for up to $3.0
      million for acquisitions of computer and manufacturing equipment. These
      agreements call for monthly payments of principal and interest over a
      seven-year period. At July 31, 1999, the Company had approximately $1.1
      million available for future equipment purchases.


                                      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 - Long-Term Debt - (Continued):

      Other

      On April 9, 1998, the Company established an operating line of credit with
      a Canadian bank for its Canadian subsidiary in the amount of CDN $800. The
      Company agreed to guarantee payment to the bank, limited to US $500 plus
      interest and expenses. Borrowings under the facility bear interest at the
      Canadian Prime Rate plus .75% per year (7.0% at July 31, 1999). The debt
      is collateralized by the personal property of the Canadian business. The
      Canadian company is required to maintain certain financial ratios, and
      there is a limitation on capital expenditures. As of July 31, 1998 and
      1999, the outstanding balances were $155 and $203, respectively.

      The aggregate amount of long-term debt maturing in each of the five years
      subsequent to July 31, 1999 and thereafter is as follows:

                        2000                     $ 2,697
                        2001                       2,545
                        2002                      21,723
                        2003                       1,341
                        2004                         670
                        Thereafter                 1,619
                                                 -------
                        Total                    $30,595
                                                 =======

Note 5 - Special and Unusual Charges:

      During the fiscal 1999, the management team led by recently recruited
      senior management personnel 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 6 - 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.


                                      F-16
<PAGE>

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

Note 7 - Income Taxes:

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

                                                           July 31,
                                               -------------------------------
                                                 1997        1998       1999
                                               -------     -------     -------
            Current tax expense (benefits):
            Federal                            $ 1,273     $   356     $  (776)
            State                                  359          63         (73)
            Foreign                                127         191         175
                                               -------     -------     -------
                                                 1,759         610        (674)
                                               -------     -------     -------

            Deferred tax expense (benefit):
            Federal                               (287)          3      (2,904)
            State                                  (34)        152        (312)
            Foreign                                 --          --          --
                                               -------     -------     -------
                                                  (321)        155      (3,216)
                                               -------     -------     -------

            Income tax provision (benefit)     $ 1,438     $   765     $(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:

<TABLE>
<CAPTION>
                                                                                   July 31,
                                                                        -----------------------------
                                                                          1997      1998         1999
                                                                          ----      ----         ----
      <S>                                                               <C>        <C>         <C>
      Provision at statutory rate                                       $   975    $   650     $(3,716)
      Increases (reductions) in taxes resulting from:
        State income taxes                                                  250         42        (320)
        Effect of foreign income not subject to federal income tax           --         28          (3)
        Nondeductible costs                                                 213         45         123
        Increase in valuation allowance                                      --         --         250
        Reversal of prior tax accruals                                       --         --        (224)
                                                                        -------    -------     -------

      Income tax provision (benefit)                                    $ 1,438    $   765     $(3,890)
                                                                        =======    =======     =======
</TABLE>

      The Company has a federal net operating loss and capital loss carryforward
      of approximately $7,431 and $652, respectively, which expires in fiscal
      years ended 2019 and 2004, respectively. The Company has net operating
      loss and capital loss carryforward for state tax purposes of approximately
      $8,525 and $652, respectively, expiring in fiscal year ended 2006 and
      2004, respectively.


                                      F-17
<PAGE>

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

Note 7 - Income Taxes - (continued):

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

                                                                July 31,
                                                           ----------------

                                                           1998       1999
                                                           ----       -----

         Current assets and liabilities
             Allowance for doubtful accounts             $   535     $    99
             Inventory valuation (IRC 263A)                  671         448
             Accrued expenses                                204         345
             Net operating loss carryforward                  17       3,086
             Inventory valuation allowance                   811         945
                                                         -------     -------
                                                           2,238       4,923
             Valuation allowance                              --        (250)
                                                         -------     -------
             Net current deferred tax asset              $ 2,238     $ 4,673
                                                         =======     =======

         Non-current assets and liabilities
             Deferred gain on sale of land               $   468     $   417
             Installment contract                           (222)       (207)
             Property and equipment                         (538)        124
             Other                                            81         108
             Net operating loss carryforward                  --          16
             Accrued expenses                                 --         113
                                                         -------     -------
                                                            (211)        571

             Valuation allowance                              --          --
                                                         -------     -------
             Net non-current deferred tax (liability)    $  (211)    $   571
                                                         =======     =======

      Included in other assets for 1999 is $571 non-current deferred taxes.

      The valuation allowance relates to utilization of net operating loss
      carryforwards. The Company believes some uncertainty exists with regard to
      the ability to realize these items, and accordingly, has established a
      partial valuation allowance.


                                      F-18
<PAGE>

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

Note 8 - Other Expenses, Net:

                                                  July 31,
                                       --------------------------------

                                         1997        1998        1999
                                         ----        ----        ----

         Interest expense              $ 2,386     $ 2,555     $ 2,682
         Rental income                    (332)       (220)         --
         Interest income                  (190)       (209)        (75)
         Gain on sale of land               --        (683)         --
         Other                            (225)        129        (178)
                                       -------     -------     -------

         Other expenses, net           $ 1,639     $ 1,572     $ 2,429
                                       =======     =======     =======

      Interest expense for the years ended July 31, 1998 and 1999, excludes
      capitalized interest of approximately $75 and $37, respectively, relating
      to the renovation program at the Freehold facility.

Note 9 - Shareholders' Equity:

      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 have been retroactively reflected in the accompanying consolidated
      financial statements and in these notes to the consolidated financial
      statements.

      In April 1998, the shareholders approved the Non-Employee Directors' Stock
      Option Plan, pursuant to which 62,500 shares of IVC 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 IVC common stock, to
      each of IVC's non-employee directors.

      In March 1999, the Board of Directors unanimously approved, subject to
      shareholder approval, an amendment to the Non-employee Directors' Stock
      Option Plan, to provide that as of September 1 of each year commencing
      with 1999, each non-employee director be granted an option to purchase
      3,125 shares of IVC common stock and the grant to each non-employee
      director of an option to purchase 1,875 shares of IVC common stock. The
      plan terminates on March 16, 2008.

      In July 1995, the Board of Directors adopted the 1995 Stock Option Plan
      (the "1995 Option Plan") pursuant to which 125,000 shares of IVC 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. Its terms are substantially the same as those of the
      1993 Stock Option Plan. In April 1998, the stockholders approved an
      increase in the number of shares subject to the plan to 250,000 shares.


                                      F-19
<PAGE>

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

Note 9 - Stock Option Plans:

      The Company has options outstanding under three plans. Under the "1993
      Option Plan", the "1995 Option Plan", and the "Non-Employee Directors'
      Stock Option Plan", options may be granted for 62,500, 250,000 and 62,500
      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>
                                                              Non-Employee
                                       1993         1995        Director      Other     Option Price
                                   Option Plan   Option Plan      Plan       Options       Range
                                   -----------   -----------  ------------   -------    ------------
    <S>                               <C>          <C>           <C>         <C>        <C>
    Outstanding at July 31, 1996      55,500       32,748           --       12,500     $
    Granted                               --       15,000        5,000           --     11.52-15.44
    Cancelled                         (1,625)          --           --           --     12.00-19.04
    Exercised                             --           --           --           --
                                      -------------------------------------------------------------
    Outstanding at July 31, 1997      53,875       47,748        5,000       12,500
    Granted                               --       16,125        6,250           --     15.76-18.72
    Cancelled                             --       (6,250)          --           --     12.00-36.00
    Exercised                             --           --           --           --
                                      -------------------------------------------------------------
    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)    7.52-26.48
    Exercised                             --           --           --           --
                                      -------------------------------------------------------------
    Outstanding at July 31, 1999      31,250      260,208       28,125           --
                                      ======      =======       ======       ======
    Options currently
    exercisable                       31,250       72,585       16,875           --
                                      ======      =======       ======       ======
    Options available for grant
    at July 31, 1999                  31,250           --       34,375
                                      ======      =======       ======
</TABLE>

      During the 1999 fiscal year options were granted for 10,208 shares,
      subject to shareholder approval of an amendment to the 1995 Stock Option
      Plan increasing the number of shares that may be issued pursuant to the
      plan.

      The weighted average fair value of options granted at fair market value
      was $7.28, $8.96 and $3.46 where the exercise price equals stock price
      during the fiscal years ended July 31, 1997, 1998 and 1999, respectively,
      and $8.40 where the exercise price exceeded the stock price during fiscal
      year ended July 31, 1997.


                                      F-20
<PAGE>

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

Note 9 - Stock Option Plans - (Continued):

The table below summarizes information relating to options outstanding and
exercisable at July 31, 1999:

<TABLE>
<CAPTION>
                               Outstanding Options                               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>
           $  3.75-5.00      128,875       $     4.86               7.3                -               -

             5.01-10.00       92,750             7.18               8.6           35,251           $7.46

            10.01-15.00       26,250            12.11               8.3           13,750           12.60

            15.01-20.00       36,500            16.24               5.7           36,500           16.24

            20.01-26.48       35,209            22.50               2.7           35,209           22.50
</TABLE>

      The fair value of options granted in the years ended July 31, 1997, 1998
      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,           1997          1998         1999
               -------------------           ----          ----         ----
               Risk-free interest rate         6.6%         6.3%         6.0%
               Expected volatility            54.6%        52.4%        56.3%
               Dividend yield                    0%           0%           0%
               Expected life               5 years      5 years      5 years


                                      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 - Stock Option Plans - (Continued):

      The Company accounts for the costs of stock-based compensation in
      accordance with Accounting Principle Board Opinion No. 25, "Accounting for
      Stock Issued to Employees", rather than the fair value-based method in
      Statement of Financial Accounting Standards No. 123 (SFAS 123),
      "Accounting for Stock-Based Compensation". 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 $83, $121 and $458 for
      the years ended July 31, 1997, 1998 and 1999, respectively. The Company's
      pro-forma net income and pro-forma net income per share for the years
      ended July 31, 1997, 1998 and 1999 would have been as follows:

<TABLE>
<CAPTION>
                                                           Year End July 31,
                                                           -----------------

                                                   1997         1998        1999
                                                   ----         ----        ----
      <S>                                       <C>          <C>          <C>
      Net income (loss)
      -----------------------------------------------------------------------------
         As reported                            $   1,346    $   1,147    $  (7,041)
         Pro-forma                                  1,263        1,026       (7,499)

      Net income (loss) per share - Diluted:
      -----------------------------------------------------------------------------
         As reported                            $    0.63    $    0.53    $   (3.28)
         Pro-forma                                   0.59         0.48        (3.49)
</TABLE>

      Since compensation expense associated with option grants is recognized
      over the vesting period, the initial impact of applying SFAS No. 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 10 - 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, 1997,
      1998 and 1999 the Company contributed $117, $173 and $206, respectively,
      to the Plan.


                                      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 - Related Party Transactions:

      The Company has advanced funds to certain shareholders. Interest charged
      is 5% per annum. The amounts due at July 31, 1998 and July 31, 1999
      totaled $520 and $507, respectively. These amounts are payable, $366 by
      July 2000 and $141 by March 2005. Interest income earned on receivables
      from shareholders was approximately $42 and $27 for the years ended July
      31, 1998 and 1999, respectively.

      Interest on a loan payable to a shareholder aggregated approximately $11,
      $7 and $1 for the years ended July 31, 1997, 1998 and 1999, respectively.

      The Company had advanced funds to certain employees. Interest charged was
      8% per annum. These amounts were paid back during the fiscal year ended
      July 31, 1999. The amount due at July 31, 1998 was $531.

      The Company sells products to Healthfair Vitamin Centers, Inc., a company
      wholly owned by Arthur and Ethel Edell. Sales to this affiliate were $169,
      $104 and $63 for the years ended July 31, 1997, 1998 and 1999,
      respectively. The amount due from this affiliate was $4 and $3 at July 31,
      1998 and 1999, respectively.

      The Company sells products to D.N.R. Inc., an Israeli company of which one
      of its principal shareholders is the brother-in-law of the former
      President of the Company's International Division. These sales aggregated
      $313, $131 and $128 for the years ended July 31, 1997, 1998 and 1999,
      respectively. Accounts receivable from these related parties aggregated
      $102, $65 and $0 at July 31, 1997, 1998 and 1999, respectively.

      During the fiscal years ended July 31, 1997, 1998 and 1999 the Company
      paid approximately $0, $42 and $112, respectively, for legal services
      provided to the company by Edell & Associates. Marc Z. Edell is a
      principal of Edell & Associates and also a Director of the company.

      The Company holds 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 $850 and $813
      at July 31, 1998 and 1999, respectively. The contract receivable requires
      a monthly payment of $9, which includes interest and principal through its
      maturity in January 2012. Interest income earned by the Company on this
      contract was $80, $78 and $74 for the years ended July 31, 1997, 1998 and
      1999, respectively. The Company leases its manufacturing and
      administration facility in Portland, Oregon from Agora. Rent expense
      incurred by the Company for this property was $163, $169 and $170 for the
      years ended July 31, 1997, 1998 and 1999, respectively.


                                      F-23
<PAGE>

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

Note 12 - 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 pay
      taxes, maintenance, insurance and other related expenses. Rent expense
      aggregated $760, $1,305 and $1,373 for the years ended July 31, 1997, 1998
      and 1999, respectively. Future minimum lease payments due under these
      leases at July 31, 1999 are as follows:

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

                             2000            $    479
                             2001                 390
                             2002                 112
                             2003                  38
                             2004                  19
                                             --------

                            Total            $  1,038
                                             ========

      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 $4,843 as of
      July 31, 1999. 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, 1999:

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

                                             2000           $    455
                                             2001                488
                                             2002                520
                                             2003                520
                                             2004                520
                                       Thereafter              2,340
                                                            --------

                     Total minimum lease payments           $  4,843
                Less amount representing interest             (1,527)
                                                            --------
      Present value of net minimum lease payments              3,316
                          Less current maturities               (180)
                                                            --------
                             Long-term maturities           $  3,136
                                                            ========


                                      F-24
<PAGE>

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

Note 12 - 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 2000
      and 2001, respectively.

      The agreement with Mr. Edell is for one 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.

      Litigation

      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 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.

      Standby Letter of Credit

      The Company has two standby letters of credit aggregating $7.0 million
      related to the New Jersey Economic Development Authority borrowings.

Note 13 - Major 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 36% of net sales for
      the fiscal year ended July 31, 1998. The same customer accounted for 48%
      of net sales in the fiscal year ended July 31, 1999.


                                      F-25
<PAGE>

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

Note 14 - 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, 1998

   Net sales                                 $ 27,709     $ 29,253     $ 34,980     $ 27,833      $119,775

   Gross profit                                 6,801        8,038        8,423        5,257        28,519

   Income from operations                       1,022        1,401        1,648         (587)        3,484

   Net income (loss)                              332          536          702         (423)        1,147

   Net income (loss) per share - Basic           0.16         0.24         0.32        (0.18)         0.54

   Net income (loss) per share - Diluted         0.16         0.24         0.32        (0.19)         0.53

July 31, 1999

   Net sales                                 $ 29,239     $ 30,661     $ 25,558     $ 21,881      $107,339

   Gross profit                                 7,006        8,492        7,014        3,638        26,150

   Income (loss) from operations                  914        1,547        1,283      (12,246)       (8,502)

   Net income (loss)                              179          569          459       (8,248)       (7,041)

   Net income (loss) per share - Basic           0.08         0.24         0.24        (3.84)        (3.28)

   Net income (loss) per share - Diluted         0.08         0.24         0.24        (3.84)        (3.28)
</TABLE>

      The fourth quarter 1998 gross profit was detrimentally impacted by excess
      manufacturing labor caused by the unexpected volume decrease in the fourth
      quarter, as compared to the third quarter. At the balance sheet date, the
      Company took a physical count of all inventories and adjusted to these
      counts and valuations.

      The fourth quarter 1999 was detrimentally impacted by charges associated
      with the Company's strategic restructuring plan implementation.


                                      F-26
<PAGE>

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

Note 15 - Year 2000 ("Y2K") Uncertainty:

      Over the past two years the Company has replaced all information
      technologies hardware and software, upgraded laboratory equipment, and
      replaced facilities equipment. The Company has completed comprehensive,
      company wide Y2K testing during which the systems performed successfully.
      The Company also requested compliance information from its significant
      vendors, suppliers, and service providers. Nevertheless, satisfactorily
      addressing the Y2K issue is dependent on many factors, some of which are
      not within the Company's control. Should the Company's internal systems or
      the internal systems of one or more significant vendors or suppliers fail
      to achieve Y2K compliance, the Company's business and its results of
      operations could be adversely affected.

Note 16 - Subsequent Event:

      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 violation of Section 1 of the Sherman
      Antitrust Act and other wrongful anti-competitive conduct in violation of
      various federal and state laws.

      Pursuant to the terms of the Settlement Agreement, the Company agreed to
      release all claims it may have against the supplier based on the Company's
      purchases of various vitamins from the supplier since 1990 and to opt out
      of any settlement in connection with a pending class action suit.

      In exchange for the Company's release and agreement to opt out of any
      settlement in the pending class action suit, the Company received a
      settlement compensation package comprised of the following: (i) a $10
      million cash payment; (ii) a price discount of 5% on future purchases up
      to $1 million per year over three years; and (iii) an advance, refundable
      in cash or stock, of $2.7 million 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 pending class action
      suit is settled and the settlement amount that would have been received
      thereunder exceeds $12.7 million, the supplier agrees to make additional
      payments to the Company based on, and subject to certain adjustments to,
      the amounts recovered by the plaintiffs in the pending class action suit.
      The Company received a cash payment of $12.7 million on September 24,
      1999. The proforma effect on the Company shareholder's equity net of
      applicable income taxes is approximately $6,200.

      The proforma balance sheet at July 31, 1999 reflects the transaction noted
      above.


                                      F-27
<PAGE>

                                  SCHEDULE II

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE YEARS ENDED JULY 31, 1998 AND 1999
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
  For the Year                                     Balance at    Added      Charged to    Charged
    Ended                                          Beginning     During      Cost and     to Other                  Balance at
   July 31,               Description               of Year     the Year     Expenses     Accounts   Deductions    End of Year
   --------               -----------               -------     --------     --------     --------   ----------    -----------
<S>             <C>                                 <C>            <C>       <C>               <C>       <C>          <C>
                Accumulated amortization of
                goodwill:

     1998                                           $    --         130          36             --           --       $     94
                                                    =======       =====       =====        =======       ======       ========

     1999                                           $    94          --         162             --          256       $     --
                                                    =======       =====       =====        =======       ======       ========
                Allowance for doubtful accounts:

     1998                                           $ 1,871         277          --             --           --       $  2,148
                                                    =======       =====       =====        =======       ======       ========

     1999                                           $ 2,148          --         597             --        2,165       $    580
                                                    =======       =====       =====        =======       ======       ========
                Inventory reserve:

     1998                                           $ 1,976         488          --             --           --       $  2,464
                                                    =======       =====       =====        =======       ======       ========

     1999                                           $ 2,464       3,525       3,450             --           --       $  2,539
                                                    =======       =====       =====        =======       ======       ========

                Valuation allowance related to
                deferred taxes:
     1999                                           $    --         250          --             --           --       $    250
                                                    =======       =====       =====        =======       ======       ========
</TABLE>


                                       S-1