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, 1998

|_|   Transition report under Section 13 or 15 (d) of the Securities Exchange
      Act of 1934 For the transition period from ___________ to ___________ 

                         Commission file number 0-23624

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

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

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

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
            Redeemable Common Stock Purchase Warrants

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 12, 1998, the aggregate market value of the Common Stock of the
registrant held by non-affiliates of the registrant was $6,113,694.

The number of shares of Common Stock ($.01 par value) outstanding as of October
12, 1998 was 17,211,540.
<PAGE>

                              IVC INDUSTRIES, INC.

                                TABLE OF CONTENTS

                           Annual Report on Form 10-K
                     For the Fiscal Year ended July 31, 1998

                                                                        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........................ 21

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

PART III

Item 10   Directors and Executive Officers of the Registrant................ 22
                                                                             
Item 11   Executive Compensation............................................ 25
                                                                             
Item 12   Security Ownership of Certain Beneficial Owners and Management.... 30
                                                                             
Item 13   Certain Relationships and Related Transactions.................... 32
                                                                             
                                                                             
PART IV                                                                      
                                                                             
Item 14   Exhibits, Financial Statement Schedules and Reports on Form 8-K... 33
<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, its Nature's Wonder brand is also sold
through independent drug stores, and its Vitamin Specialties(R) brand is sold in
the Company-owned Vitamin Specialties health food stores and mail order
catalogues. The Company's products are also marketed internationally under its
own brands and private brands, as well as in bulk form.

      IVC markets over 600 different products, which are packaged under various
labels and bottle counts. They are sold in single vitamin and in multivitamin
combinations, with varying potency levels in tablets (including chewable and
time released tablets), powders, two-piece hard shell capsules, as well as soft
gelatin encapsulated capsules ("soft gels"). The Company has traditionally
manufactured virtually all of its products except for soft gels, which it had
until recently purchased from others. With the completion of its soft gel
encapsulation facility, the Company is self-sufficient relative to its own soft
gel needs and has begun to generate revenues from third-party sales of soft gel
products. (See "Soft Gel Encapsulation Facility"). The Company considers its
operations to be a single business segment.

      On March 15, 1996, the Company changed its name from International Vitamin
Corporation to IVC Industries, Inc.

      On April 30, 1996, the Company acquired Hall Laboratories, Inc. ("Hall")
in a transaction accounted for as a pooling of interests. Hall, located in
Portland, Oregon, was founded in 1953, and was engaged in the manufacturing,
packaging, and sale and distribution of vitamins, nutritional supplements and
over-the-counter pharmaceutical products primarily through chain drug stores,
supermarkets, mass merchandisers and warehouse clubs. Hall's products had been
distributed throughout the United States (with a significant concentration on
the West Coast) and in Canada. The majority of Hall's products were marketed
under the private labels of its retail chain customers.

      On June 13, 1997, the Company acquired the Vitamin Specialties brand and
related distribution operations of HealthRite, Inc. for $2.8 million (including
inventory). Vitamin Specialties products are distributed through a chain of 16
retail health food/vitamin stores located in Eastern Pennsylvania and Southern
New Jersey, as well as through a mail order catalogue operation.


                                       1
<PAGE>

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 and Saw Palmetto and various multivitamin
combinations. IVC has the capacity to produce millions of tablets per day using
technologically advanced high-speed manufacturing equipment. Its 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 capsules annually and could approach
4 billion capsules annually in its existing facility with the installation of
certain additional equipment.

      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, tableting and coating equipment, high-speed packaging equipment,
including "cartoning", "stretch carding" and "blister carding" equipment, and
testing and quality control laboratories. 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.

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.


                                       2
<PAGE>

      Intergel, the Company's soft gel encapsulation division, completed
construction of its facility and the installation and start-up of the initial
production lines during the first quarter of fiscal 1996. Production levels
increased in each ensuing quarter until the first half of fiscal 1997, at which
time all lines reached full-scale levels of operation.

      Intergel produces soft gels in various shapes and sizes. Among the vitamin
and nutritional supplement products generally sold in soft gel form are vitamin
E, beta-carotene, cod liver oil, garlic oil and lecithin. With the plant at full
scale levels of production, IVC is now 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 cosmetic applications.

      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.

      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"). During the past year, Intergel entered into a new
multi-product development agreement with Block Drug Company, Inc., a major
multinational pharmaceutical company, to jointly develop soft gel encapsulated
OTC products, which are being manufactured by Intergel for this company. The
first product has been approved and shipments began in the first quarter of
1998.

      Intergel also has developed a nutritional product line, which has been
introduced under the Company's Fields of Nature brand. The line is being
marketed under the Company's new "LiquaFil" product line, and is comprised of a
wide spectrum of vitamin, nutritional and herbal products, all of which are in
soft gel form. The Company began initial shipments of the LiquaFil line to
existing customers in the first quarter of fiscal 1998. In addition, through the
LiquaFil line, the Company has been able to secure additional distribution
through such customers as Eckerd Drug, American Stores, Kerr Drug and Kmart
Corp. As additional soft gel products have been added to the LiquaFil line
during the course of fiscal 1998, the Company began introducing these products
as line extensions to both its existing and new customers who will be carrying
this unique line of soft gel nutritional and herbal products.


                                       3
<PAGE>

Marketing and Distribution Strategies

      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. Generally, IVC enters into supply agreements with these
customers and its marketing efforts are directed at developing customized
marketing programs with them. As part of these programs, IVC provides its retail
customers with comprehensive sales and marketing support. 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.

      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 and Independent Drug Stores

      Historically, the Company has focused its health food and independent drug
store marketing and promotional activities on its Synergy Plus and Nature's
Wonder branded products. IVC has been successful in expanding its markets to
geographic areas in proximity to those where these brand names are well known.
The Company believes that this strategy of expanding its geographical
penetration is an effective method to enter new markets. The Company utilizes
both its own internal sales force as well as distributors to market these
brands.

      Direct-to-Consumer Sales

      The acquisition of the Vitamin Specialties retail stores and mail order
operations marked the first step in the Company's pursuit of direct-to-consumer
distribution channels, which the Company has earmarked as an important element
of its growth strategy. The Company believes that the integration of the Vitamin
Specialties operations into its core business will allow it to capitalize on its
ability to internally manufacture its products, bringing them directly to their
ultimate consumers.


                                       4
<PAGE>

      Export Sales

      The Company has begun to capitalize on the global opportunities created by
the increasing worldwide recognition of the benefits of vitamins and nutritional
supplements and the perception that "American made" pharmaceutical products are
the safest and highest quality products available. During the past few years,
the Company has successfully developed various export markets and established
relationships with distributors in North and South America, Europe, Asia and the
Middle East.

      Other Channels of Distribution

      The Company supplies 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. These strategies represent
additional opportunities for IVC to increase its plant utilization rates and
profitability without any significant additional capital outlays.

Industry Overview

      Based on industry sources, including trade publications, the Company
believes that the retail market for vitamins and nutritional supplements in the
United States presently exceeds $7 billion annually, representing a compounded
annual increase of 14% from the $4.4 billion in 1993. Approximately 45% of
adults in the United States take some form of vitamin or nutritional supplement,
up from 36% in 1993.

      IVC believes that this market will continue to expand due to increasing
consumer awareness of the health benefits of vitamins and nutritional
supplements and the widely publicized reports of medical research findings
indicating a correlation between the consumption of micro-nutrients, such as
vitamin C and vitamin E (antioxidants) and reduced incidence of diseases such as
heart disease, cancer and stroke. However, there have been studies relating to
certain antioxidants with results, which have been contrary to certain of the
favorable indications of other prior and subsequent studies. Also, as scientific
research to date is preliminary, there can be no assurance of future favorable
scientific results and media attention, or the absence of unfavorable or
inconsistent findings.

      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. Industry sources indicate that approximately 55% of
Americans aged 50 and over are regular vitamin users. It is anticipated that the
50 and over age group will be the fastest growing segment of the United States
population as the baby boom generation continues to mature.


                                       5
<PAGE>

      Private Label Industry

      A major part of IVC's sales consists of store brand (private label)
products. Sales of private label vitamins have grown significantly in chain drug
stores and have become a key ingredient in the success of retailers. From the
consumer's standpoint, store brand products offer lower-priced and equal if not
better quality alternatives to nationally advertised brand name products. From
the retailer's standpoint, such products allow for lower retail pricing than
national brands and yet provide retailers with higher profit margins. Industry
analysts predict that private label's share of the overall market should grow
significantly over the next 10 years. IVC believes that it is well positioned to
participate in this growth.

Source and Availability of Raw Materials

      The principal raw materials used in the manufacturing process are natural
and synthetic vitamins, purchased from manufacturers primarily in the United
States, with certain materials imported from Japan and Europe. IVC purchases its
raw materials from numerous sources. Although one of the Company's suppliers
individually accounted for approximately 26% of total purchases in 1998 and 44%
in 1997, 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 percent of IVC's raw material purchases.

Major Customers

      IVC's active customer base approaches 2,000 customers. The Company's ten
largest customers accounted for 73% of sales during fiscal 1998, with one
individual customer, PriceCostco, accounting for approximately 36% of sales.
During 1997, the Company's ten largest customers accounted for approximately 69%
of sales, with one customer, PriceCostco, accounting for 23% of sales. No other
customers accounted for more than 10% of net sales. If any of IVC's major
customers substantially reduce their volume of purchases from IVC, results of
operations could be materially adversely affected.


                                       6
<PAGE>

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 Your Life(R), Nature
Made(R), Sundown(R) and Nature's Bounty(R), which are brands of Leiner Health
Products Group, Inc., Pharmavite Corp., Rexall Sundown, Inc. and NBTY, Inc.,
respectively. These companies are also IVC's competitors for private label
business. In addition, IVC competes with the more heavily advertised national
brands, which are manufactured by large pharmaceutical companies. The
marketplace for private label business is extremely price sensitive with service
levels, quality, innovative packaging, marketing and promotional programs and
uniqueness of products being the key factors influencing competitiveness.

      The Company believes that there are also numerous companies competing 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 brand competes with
brands such as Twin Labs(R), Solgar(R), Schiff(R), and Country Life(R) in health
food stores while Nature's Wonder competes with brands such as Windmill(R) and
Hudson(R) in independent drug stores. 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
and, consequently, enjoy the manufacturing and operating efficiencies resulting
from longer production runs.


                                       7
<PAGE>

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 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 are to take effect by March 1999, also require additional record
keeping and claim substantiation, reformulation, or discontinuance of certain
products, which could have a material expense to the Company.


                                       8
<PAGE>

      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, Vitamin Specialties, 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

      IVC does not conduct primary research for the development of new
ingredients. Instead, IVC's research efforts are focused on developing new
products in response to market trends and consumer demands. IVC's staff also
continually reformulates existing IVC 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. By monitoring market trends and by avoiding short-lived "fad"
items, the Company's marketing department is able to anticipate significant
consumer demand for certain types of products. 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.


                                       9
<PAGE>

Employees

      IVC employs 691 employees, of which 26 are in sales and marketing, 68 are
in retail sales, 375 are in manufacturing and packaging, 76 are in quality
control and regulatory compliance departments, 59 are in warehousing and 87 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.


                                       10
<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(1)    Owned
                      Warehousing, Distribution and      
                      Corporate Offices                                  
                                                          
Freehold, NJ          Warehousing and Distribution        130,000(2)    Leased
                                                           
Portland, OR          Manufacturing and Administration     39,000       Leased
                                                           
Portland, OR          Packaging and Warehousing            50,000       Leased
                                                           
Irvington, NJ         Manufacturing and Administration     35,000       Leased
                                                           
Irvington, NJ         Warehousing and Distribution         43,000(3)    Leased
                                                           
New Jersey                                                 
  and Pennsylvania    16 Retail Stores                     21,000       Leased
                                                           
Surrey, British       Warehousing, Distribution and        
  Columbia, Canada    Administration                        8,000       Leased

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

(1)   The Company leases approximately 8,000 square feet of this facility to a 
      third party.

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

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


                                       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

      No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended July 31, 1998.


                                       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
for the Company's Common Stock and Warrants as reported by The Nasdaq SmallCap
Market System.

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

        Fiscal Year 1997
            First Quarter          2.88      1.69               .34        .19
            Second Quarter         2.25      1.28               .50        .19
            Third Quarter          2.13      1.13               .47        .19
            Fourth Quarter         2.06      1.56               .44        .19

        Fiscal Year 1998
            First Quarter          2.47      1.56               .19        .06
            Second Quarter         2.44      1.50               .13        .03
            Third Quarter          2.63      1.88               .09        .03
            Fourth Quarter         2.31      1.50               .09        .03

      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.

      On April 14, 1997, the Board of Directors authorized the Company to
initiate a repurchase program for up to 250,000 shares of the Company's Common
Stock. As of July 31, 1998, 32,000 shares had been repurchased pursuant to this
program.

      As of October 12, 1998, there were approximately 118 holders of record of
IVC's Common Stock and 18 holders of record of IVC's Warrants. 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,
                                                          --------------------
                                                 1998       1997       1996       1995
                                               --------   --------   --------   --------
<S>                                            <C>        <C>        <C>        <C>     
      OPERATING RESULTS

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

Income from operations                            3,484      4,423      1,540        260

Net income                                     $  1,147   $  1,346   $    296   $    593


Net income per share - Basic                   $    .07   $    .08   $    .02   $    .03

Net income per share - Diluted                 $    .07   $    .08   $    .02   $    .03

<CAPTION>

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

Long term obligations - less current portion      7,271     31,430     28,656     20,193

Shareholders' equity                             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.

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,
                                         --------------------
                                       1998      1997      1996
                                      ------    ------    ------
Net sales                              100.0%    100.0%    100.0%

Cost of sales                           76.2      74.1      74.0
                                      ------    ------    ------

Gross profit                            23.8      25.9      26.0

Selling, general and administrative
    expenses                            20.9      21.8      21.5

Merger and integration costs              --        --       3.0
                                      ------    ------    ------

Income from operations                   2.9       4.1       1.5

Other expenses-net                       1.3       1.5        .8
                                      ------    ------    ------

Income (loss) before income taxes        1.6       2.6        .7

Income taxes provision (benefit)          .6       1.4        .4
                                      ------    ------    ------

Net income                               1.0%      1.2%       .3%
                                      ======    ======    ======


                                       15
<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. The Company's core business products are distributed through
leading chain drug, supermarket and mass merchandising retailers. The current
consolidation trend among these retailers poses opportunities, as well as
challenges, for the future. The Company believes that, based on its
relationships with its retail customers, it is well positioned to participate in
the industry's future growth. There can be no assurance, however, that the
Company's current growth rates will continue, nor what effect, if any, continued
consolidation amongst the Company's retail customers will have on the Company.

      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.


                                       16
<PAGE>

      Other Expenses - Net. Other expenses - net decreased by $67 for the year
ended July 31, 1998. This principally represents interest expense of $2,555,
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.

Year Ended July 31, 1997 Compared to the Year Ended July 31, 1996

      Net Sales. Net sales for the year ended July 31, 1997 were $108.5 million,
an increase of $4.3 million, or 4.1% over $104.2 million for the year ended July
31, 1996. This increase was principally attributable to growth in unit sales of
most of the Company's vitamin products to its core customers, the increased
level of sales relative to Intergel, whose operations commenced in January 1996,
new product introductions, such as the Company's new line of herbal products,
continued growth in the international division and the initial sales
contribution from the Vitamin Specialties operations acquired in June of 1997.
Offsetting these factors was the impact of the discontinuation of the Company's
Revlon line of licensed products and the reduced sales to Revco during the
second half of 1997 as a result of the termination of the supply agreement
during the second quarter of 1997. The Company's core business products are
distributed through leading chain drug, supermarket and mass merchandising
retailers. The current consolidation trend amongst these retailers poses
additional opportunities, as well as challenges in the future. The Company
believes that, based on its relationships with its retail customers, it is well
positioned to participate in the industry's future growth. However, there can be
no assurance that the Company's current growth rates will continue, nor what
effect, if any, continued consolidation amongst the Company's retail customers
will have on the Company.

      Cost and Expenses. Cost of sales for the year ended July 31, 1997 was
$80.5 million, an increase of $3.4 million, or 4.4% over $77.1 million for the
year ended July 31, 1996. Cost of sales increased 0.1% as a percentage of net
sales. The increase in cost of sales was limited as a result of the improvement
in the overall sales mix towards higher margin products such as the Company's
Fields of Nature brand and the new herbal product line, coupled with lower
acquisition costs of certain raw materials attributable in part to the increased
purchasing power of the Company as a result of the merger with Hall in April
1996. In addition, certain of the Company's new product introductions, such as
Glucosamine and St. John's Wort, entail higher gross profit margins than the
Company's overall profit margins.

      The above factors were offset by the lower sales levels experienced by the
Revlon line of licensed products which had significantly higher margins than the
Company's overall profit margins, coupled with the changes recorded in the
fourth quarter relative to the discontinuation of the Revlon line. In addition,
the higher level of sales contributed by the Intergel division, which entailed
lower profit margins than the Company's core business segments, also contributed
to the increase in overall cost of sales during 1997. In addition, the cost of
sales was impacted by the increased amortization expense attributable to the
increased costs associated with securing longer term customer supply agreements.
These agreements, for the most part, 


                                       17
<PAGE>

extend over two or three-year periods, and the related costs are amortized over
the expected lives of the agreements.

      Selling, general and administrative expenses for the year ended July 31,
1997 were $23.6 million, an increase of $1.2 million or 5.4% over $22.4 million
for the year ended July 31, 1996. This increase was primarily attributable to:
(i) increased advertising and promotional activities, (ii) increases in sales
commissions, broker fees and other selling expenses attributable to the sales
growth in the Company's core operations, (iii) increased minimum royalty
payments associated with the Revlon line of vitamins, (iv) increased
distribution expenses attributable to higher levels of shipments associated with
the Company's core operations and Intergel's sales activities, and (v) expenses
relating to the initial operations of the Intergel division. The overall
increase was partially offset by the savings resulting from the coordination of
certain sales, marketing, distribution and general and administrative functions
between the East coast and West coast operations subsequent to the Hall merger
in April 1996, the reduced levels of advertising and promotion costs associated
with the Revlon product line compared to 1996, during which time significant
expenditures were incurred associated with the launch of the line.

      Merger Costs. Merger costs decreased by $3.2 million for the year ended
July 31, 1997, as there were no merger costs incurred during the year ended July
31, 1997.

      Other Expenses - Net. Other expenses - net increased by $821 for the year
ended July 31, 1997. This principally represents interest expense of $2,386
offset by interest income of $190 and rental income of $332. Net interest
expense for the year ended July 31, 1997 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.

Liquidity and Capital Resources

      The Company had working capital of $4.5 million at July 31, 1998, compared
with $24.4 million at July 31, 1997, a decrease of $19.9 million. The agreement
with the bank requires the Company to maintain certain financial ratios and
minimum working capital. At July 31, 1998, the Company was in violation of
certain of these covenants, which have been waived by the bank. The Company
classified the entire balance due to the bank as a current liability. The
Company's working capital needs, primarily related to inventory, increased
levels of production of the Intergel division, introduction of a new product
line, increased capital expenditures, costs associated with securing long-term
sales contracts, as well as the acquisition of the Vitamin Specialties
operations have been satisfied by cash flow generated from operations and bank
borrowings.

      Inventories increased by $6.2 million for the year ended July 31, 1998.
This increase is mainly attributable to the higher level sales activities
expected from existing customers, new product introductions and better customer
service. Higher inventory levels were maintained until the implementation of the
new computerized management inventory system. The Company has placed greater
emphasis on reducing inventory levels to more acceptable levels. In addition,
The Company also increased its inventories to support the recently acquired
Vitamin Specialties retail stores and mail order catalogue operations.


                                       18
<PAGE>

      The Company presently has a revolving line of credit and a term loan with
its bank in the amounts of $21.5 million and $2.2 million, respectively. These
agreements expire on March 31, 1999, but can be extended under certain
circumstances to August 31, 1999. The notes are collateralized by substantially
all of the Company's assets. In addition, the Company has a lease financing
agreement with the same bank for up to $1 million for acquisitions of computer
and manufacturing equipment. At July 31, 1998, $225 was available for additions.

      In August of 1998, the Company entered into an additional lease financing
agreement with a bank for up to $2 million for acquisitions of machinery and
equipment.

      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 fiscal year.

Year 2000 Compliance Program

      The Company is in the process of addressing "Year 2000" or "Y2K" issues.
These issues stem from the use by many computer systems and applications of
two-digit date fields to designate a year, which may render them unable to
distinguish years beginning with 20 from years beginning with 19. As a result,
in the year 2000, these systems may not accurately process certain critical
financial and operational information. IVC, like many other companies, is
expected to incur expenses over the next few years to address this issue.

      In the past year, the Company began to implement a compliance program to
deal with the Y2K issue. At the same time, the Company invested in a complete
replacement of its internal management information systems and is replacing its
information technologies infrastructure with new enterprise servers, personal
computers, local area networks and wide area networks. Y2K-compliant systems
have been utilized in half of the Company's facilities since the beginning of
January 1998, with the remaining facilities scheduled to be integrated by the
first quarter of calendar 1999. The Company's goal is to commence the second
quarter of calendar 1999 with Y2K-compliant computer systems throughout the
company. The Company also is assessing whether its other systems that are not
directly related to data processing contain embedded technology that may not be
Y2K-compliant.

      In addition to evaluating its own systems, the Company is in the process
of contacting its vendors and major suppliers to seek assurance that they will
be Y2K-compliant prior to the arrival of the new millennium.

      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). However, satisfactory remediation of Y2K issues is
dependent upon many factors, some of which are not completely within the
Company's control. 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. Should the Company's internal
systems or the internal systems of one or more significant vendors fail to
achieve Y2K-compliance, the Company's business and its operations could be
materially adversely affected.


                                       19
<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
form numerous sources and that the loss of 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.

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.


                                       20
<PAGE>

Item 8 Financial Statements and Supplementary Data

                          Index to Financial Statements

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

Consolidated Balance Sheets
    As of July 31, 1998 and 1997.....................................F-2

Consolidated Statements of Operations for the Years Ended
    July 31, 1998, 1997 and 1996.....................................F-3

Consolidated Statements of Cash Flows for the Years Ended
    July 31, 1998, 1997 and 1996.....................................F-4 to F-5

Consolidated Statements of Changes in Shareholders'
    Equity for the Years Ended July 31, 1998, 1997 and 1996..........F-6

Notes to Consolidated Financial Statements...........................F-7 to F-29

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

      None.


                                       21
<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          71       Chief Executive Officer and
                                          Chairman of the Board of Directors

      Andrew M. Pinkowski      64       Vice Chairman of the Board of Directors

      I. Alan Hirschfeld       47       Executive Vice President, 
                                          Chief Financial Officer and Director

      Duane Baxter             58       President, Hall Laboratories Division

      Domenic N. Golato        43       Chief Accounting Officer and
                                          *Acting Chief Financial Officer

      Mac Allen Culver III     56       Director

      Arthur S. Edell          65       Director

      Marc Z. Edell            47       Director

      Dr. Mark S. Gold         49       Director

      Dennis E. Groat          57       Director

      David Popofsky           64       Director

*     As of September 30, 1998, I. Alan Hirschfeld took a medical leave of
      absence. During his absence, Domenic Golato is assuming Mr. Hirschfeld's
      responsibilities as Chief Financial Officer.

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. Prior to that
merger, E. Joseph Edell had been president of American since 1955. Mr. Edell is
the brother of Arthur S. Edell.

      Andrew M. Pinkowski has been Vice Chairman of the Board of Directors of
IVC since the merger with Hall. 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.


                                       22
<PAGE>

      I. Alan Hirschfeld, Executive Vice President and Chief Financial Officer,
has been on IVC's Board of Directors since the Company's merger with American.
At the time of the merger, he had been Chief Operating Officer of American. He
joined American in 1987 as Chief Financial Officer. Prior to 1987, he was a
partner in Grossman, Brown, Weinberg & Lawson, Certified Public Accountants,
where he was employed since 1979. Prior to that time, Mr. Hirschfeld held
various positions at Coopers & Lybrand, a national public accounting and
consulting firm, where he was employed for six years. Mr. Hirschfeld's wife is
the daughter of E. Joseph Edell. Mr. Hirschfeld currently serves on the Board of
Directors of Room Plus, Inc.

      Duane Baxter has been President of the Company's Hall Division since the
merger with Hall in 1996. He had previously been Vice President of Marketing and
Sales for Hall from 1985 through 1996. Mr. Baxter joined Hall in 1979 as
Director of Materials, left the Company in 1983 to start his own company, and
returned to Hall in 1985.

      Domenic N. Golato, Chief Accounting Officer, joined the Company in 1998 as
Vice President Finance, Corporate Controller. From 1993 to 1998, Mr. Golato was
Vice President and Chief Financial Officer of RF Power Products, Inc., a
publicly traded international company in the semiconductor industry.

      Mac Allen Culver III has been on IVC's Board of Directors since 1997. He
had been President and Chief Operating Officer of St. Ives Laboratories, Inc., a
hair and skin care company, since 1987. Prior to 1987, he was Chairman and Chief
Executive Officer of Pay `N Save, Inc., President and Chief Executive Officer of
Gray Drug Fair and a Senior Vice President of Payless Drugstores NW, Inc., all
retail drug store chains.

      Arthur S. Edell has been on IVC's Board of Directors since 1989. He was
President of IVC 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 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 Managing 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 School of Medicine, and has written
over 500 scientific publications and numerous professional texts. Dr. Gold
currently serves on the Board of Directors of Somerset Valley Bank.


                                       23
<PAGE>

      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 from 1984
to 1988. Prior to joining Hall, he held executive positions with Scherer
Healthcare, Inc., R.P. Scherer Corporation and Mead Johnson Laboratories.

      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, except that the following persons
filed, or will be filing, late: I. Alan Hirschfeld, two reports for four sale
transactions; Marc Z. Edell, one report for four sale transactions; Andrew M.
Pinkowski, one report for one gift; and each of the non-employee directors, one
report for their receipt of stock options. 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.


                                       24
<PAGE>

Item 11 Executive Compensation

      The following table sets forth all compensation paid or distributed during
the years ended July 31, 1998, 1997 and 1996 by the Company for services
rendered by (i) the Chief Executive Officer of IVC and (ii) the four most highly
compensated executive officers of the Company.

                           SUMMARY COMPENSATION TABLE

                                                         Long-Term Compensation
                                                        ------------------------
                                    Annual Compensation   Awards
                                    ------------------------------
                                                        Securities      All
                                                        Underlying     Other
         Name and                   Salary      Bonus    Options    Compensation
    Principal Position       Year     ($)        ($)     (Shares)      ($)(1)
--------------------------------------------------------------------------------
                                                                      
E. Joseph Edell              1998   442,307       --         --            --
Chairman and                 1997   500,000       --         --            --
Chief Executive Officer      1996   500,000       --         --            --
                                                                      
Arthur S. Edell              1998   150,384       --         --         8,378
President                    1997   170,000       --         --         9,190
                             1996   170,000       --         --         3,640
                                                                      
I. Alan Hirschfeld           1998   221,153       --                    1,528
Executive Vice President     1997   250,000       --     50,000         1,528
and Chief Financial Officer  1996   250,000   50,000         --         1,028
                                                                      
Andrew M. Pinkowski          1998   159,230       --         --           500
Vice Chairman                1997   180,000       --         --           500
                             1996   120,308   90,000         --            --
                                                                      
Duane J. Baxter              1998   144,630   78,100     12,000         1,100
President/Hall Division      1997   120,000   81,000     10,000         1,100
                             1996   100,000   10,873     50,036            --

(1)   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.

Directors

      On September 10, 1996 and November 24, 1997, each of IVC's non-employee
directors was granted, subject to approval of IVC's shareholders, an option to
purchase 10,000 shares of IVC Common Stock as compensation for the services to
the Company. IVC's shareholders approved these grants at the Annual
Shareholder's Meeting held on April 16, 1998. The options granted on September
10, 1996 have an exercise price of $1.75 per share, and the options granted on
November 24, 1997 have an exercise price of $2.34 per share. In addition, the
Company's new Non-Employee Directors' Stock Option Plan provides for the grant
as of September 1 of each year of an option to purchase 10,000 shares of IVC
Common Stock to each of IVC's non-employee directors. The exercise price of such
option is the fair market value of IVC Common Stock at the time the option is
granted.


                                       25
<PAGE>

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                 Percent of
                   Number of       Total                                 Potential Realizable Value 
                  Securities      Options                                at Assumed Annual Rates of 
                  Underlying    Granted to                                Stock Price Appreciation  
                    Options    Employees in    Exercise     Expiration         for Option Term        
       Name       Granted (#)   Fiscal Year  Price ($/Sh)      Date         5% ($)        10% ($)
       ----       -----------   -----------  ------------      ----         ------        -------
<S>                 <C>              <C>        <C>          <C>           <C>            <C>    
Duane J. Baxter      2,000           1%         $1.969       08/01/07      $ 2,500        $ 6,300
                    10,000           6%         $2.188       04/30/08      $13,800        $34,900
</TABLE>

                          FISCAL YEAR-END OPTION VALUES

                                                     
                         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
      ----           -----------    -------------   -----------   -------------
                                                   
Arthur S. Edell       400,000               --        $ 82,000          --
                                                     
I. Alan Hirschfeld     50,000               --              --          --
                                                     
Duane J. Baxter        72,036           10,000        $  4,700          --
                                                   
(1)   The fair market value of the Company's Common Stock on July 31, 1998
      ($1.91 per share) minus the exercise price.

      None of the named executive officers exercised options during the fiscal
year ended July 31, 1998.

Employment Agreements

      The Company entered into amendments to its employment agreements with E.
Joseph Edell and I. Alan Hirschfeld as of February 1, 1998. Mr. Edell's
agreement now 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. Mr. Hirschfeld's agreement now provides for a base
salary of $156,250 for the period beginning on February 1, 1998 through January
31, 1999 and $171,875 for the period beginning on February 1, 1999 through
January 31, 2000. Each agreement also now provides that on each January 31
during the executive's term of employment, he shall be entitled to
performance-based bonus compensation in an amount equal to the sum of (i) the
executive'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. In addition,
each agreement now provides that the Company may, in its discretion, grant the
executive options to purchase shares of IVC Common Stock pursuant to the
Company's 1995 Stock Option Plan. The term of each agreement ends on January 31,
2000 and is automatically extended for successive one-year periods unless 


                                       26
<PAGE>

the Company or executive 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, executive shall receive a
severance payment equal to his base annual salary, provided that no severance
payment shall be required in the event that the executive retires. The Board of
Directors, at its discretion, may increase the executive's base annual salary if
the term is extended. In the event the Company terminates without cause the
employment of either of the executives, such executives 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 agreements each contain
confidentiality and non-disclosure provisions.

      The Company also entered into an amendment to its employment agreement
with Andrew M. Pinkowski as of February 1, 1998. Mr. Pinkowski's agreement now
provides for a base salary of $112,500 for the period of February 1, 1998
through April 30, 1999. The agreement also now provides that on January 31,
1999, Mr. Pinkowski shall be entitled to performance-based bonus compensation in
an amount equal to the sum of (i) his 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. In addition, the agreement now 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. The term of the agreement ends
on April 30, 1999. In the event the Company terminates his employment without
cause, the Company is obligated to pay his base salary throughout the remainder
of his term of employment. The agreement contains confidentiality and
non-disclosure provisions. In addition, upon expiration of his term of
employment, the agreement provides that he remain a consultant to the Company
for a term of five years at $80,000 per annum.

      The Company entered into a severance agreement with Arthur S. Edell,
effective as of June 1, 1998, in which the Company and Mr. Edell agreed that his
employment with IVC, including his tenure as President, terminated as a result
of his resignation. Pursuant to the agreement, Mr. Edell's resignation is
considered a "retirement" under IVC's stock option plans. The agreement provides
for a severance payment of $85,000 per annum for a period of three years, which
have been accrued as of July 31, 1998. 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, 1998 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.


                                       27
<PAGE>

      Overall Policy

      The Compensation Committee believes that the Company's officers are
largely responsible for the Company's success. Based on this belief, 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.

      In establishing E. Joseph Edell's annual base salary under the amendment
to his employment agreement, and the new performance based bonus compensation,
the Compensation Committee took into account the Company's achievements in
fiscal 1996 and 1997, its assessment of Mr. Edell's individual performance, as
well as base salaries and bonuses for chief executive officers at companies of
comparable size and complexity, both public and private, known to members of the
Compensation Committee. The Compensation Committee also took into account Mr.
Edell's contribution to the Company's growth and diversity and his future
anticipated contributions to the Company.

      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


                                       28
<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, 1994 through
1998. The Company's Common Stock was initially registered under Section 12 of
the Exchange Act in February 1994.

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

<TABLE>
<CAPTION>
                            Value of $100 investment

  Date      IVC Industries, Inc.   Nasdaq Composite Index   S&P Healthcare-Drugs Index
  ----      --------------------   ----------------------   --------------------------
<S>                  <C>                      <C>                   <C>
31-Mar-94            100                      100                   100
31-Jul-94             85                      97                    107
31-Jul-95             64                      135                   174
31-Jul-96             69                      145                   228
31-Jul-97             48                      214                   380
31-Jul-98             46                      252                   540
</TABLE>


                                       29
<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 12, 1998.

                 Name and Address of               Number of     Percentage
Title of Class   Beneficial Owner                   Shares        of Class
--------------   ----------------                   ------        --------

    Common       E. Joseph Edell (1)               5,357,430        31.13%
                 c/o IVC Industries, Inc. 
                 500 Halls Mill Road
                 Freehold, NJ 07728
                 
    Common       Andrew M. Pinkowski (2)           2,654,062        15.42%
                 c/o IVC Industries, Inc. 
                 3580 N.E. Broadway
                 Portland, OR 97232
                 
    Common       I. Alan Hirschfeld (3)            2,228,689        12.95%
                 c/o IVC Industries, Inc. 
                 500 Halls Mill Road
                 Freehold, NJ 07728
                 
    Common       Arthur S. Edell (4)               2,036,488        11.83%
                 c/o IVC Industries, Inc. 
                 500 Halls Mill Road
                 Freehold, NJ 07728
                 
    Common       Duane J. Baxter (5)                 234,904         1.36%
                 c/o IVC Industries, Inc. 
                 3580 N.E. Broadway
                 Portland, OR 97232
                 
    Common       Marc Z. Edell (6)                    96,800          .56%
                 c/o Edell & Associates
                 1776 On the Green
                 Morristown, NJ 07962
                 
    Common       Dr. Mark S. Gold (6)                 30,000          .17%
                 c/o 2002 San Marco Boulevard
                 Jacksonville, FL 32207
                 
    Common       Dennis E. Groat (6)                  30,000          .17%
                 c/o IVC Industries, Inc. 
                 3580 N.E. Broadway
                 Portland, OR 97232


                                       30
<PAGE>

                 Name and Address of               Number of     Percentage
Title of Class   Beneficial Owner                   Shares        of Class
--------------   ----------------                   ------        --------

    Common       David Popofsky (6)                   30,000          .17%
                 c/o Popofsky Advertising
                 60 Madison Avenue
                 New York, NY 10010

    Common       Mac Allen Culver III(7)              20,000          .12%
                 27 Pebble Beach Drive
                 Rancho Mirage, CA  92270

    Common       All Executive Officers and       12,718,373        73.89%
                 Directors as a group (10
                 persons)(8)
                 

(1)   Includes 1,000 shares of IVC Common Stock issuable upon exercise of
      warrants and 601,410 shares of IVC Common Stock owned by Beverlee Edell,
      the wife of E. Joseph Edell. Mr. Edell disclaims beneficial ownership of
      the shares owned by his wife.

(2)   Includes 943,845 shares owned by his wife. Mr. Pinkowski disclaims
      beneficial ownership of the shares owned by his wife.

(3)   Includes 50,000 shares of IVC Common Stock issuable upon exercise of stock
      options, 179,868 shares of IVC Common Stock owned by Susan H. Hirschfeld,
      the wife of I. Alan Hirschfeld, 31,194 shares of IVC Common Stock owned by
      Mr. Hirschfeld's minor children, and 120,000 shares owned by Two Seas
      Ventures, a family partnership. Mr. Hirschfeld disclaims beneficial
      ownership of the shares owned by his wife and children.

(4)   Includes 410,000 shares of IVC Common Stock issuable upon exercise of
      stock options and 1,500,000 shares owned by the two Edell Family
      Partnerships (750,000 each).

(5)   Includes 72,036 shares of IVC Common Stock issuable upon exercise of stock
      options.

(6)   Includes 30,000 shares of IVC Common Stock issuable upon exercise of stock
      options.

(7)   Includes 20,000 shares of IVC Common Stock issuable upon exercise of stock
      options.

(8)   Includes 673,036 shares of IVC Common Stock issuable upon the exercise of
      stock options and warrants held by all executive officers and directors.


                                       31
<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
current loan balance is $80,000. This loan has no stated terms of repayment and
bears interest at 6% for the fiscal years ended July 31, 1998 and 1997. The
above loan was obtained on terms no less favorable to the Company than could be
obtained from non-related parties.

      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, 1998,
the aggregate net advances to E. Joseph Edell and I. Alan Hirschfeld were
$347,000 and $173,000, respectively. The balances due the Company at July 31,
1998 are payable by July 31, 2000.

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, 1998, 1997 and 1996 were $104,000, $169,000 and $154,000,
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 President of the Company's International Division.
The Company's sales to D.N.R. Inc. for the years ended July 31, 1998, 1997 and
1996 were approximately $491,000, $313,000 and $389,000, respectively.

      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 $850,000 and $878,000, as
at July 31, 1998 and 1997, respectively. Interest income earned by the Company
on this contract was $78,000, $80,000 and $85,000 for the years ended July 31,
1998, 1997 and 1996, respectively. The Company leases its manufacturing and
administration facility in Portland, Oregon from Agora. Rent expense incurred by
the Company for this property was $169,000, $163,000 and $161,000 for the years
ended July 31, 1998, 1997 and 1996, respectively. The above sales and rentals
were made on terms no less favorable to the Company than could be obtained from
non-related parties.


                                       32
<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
     Number             Description of Exhibit
     ------             ----------------------

      3.1               Amended Certificate of Incorporation of IVC Industries,
                        Inc. (2)

      3.2               Amended and Restated By-laws of IVC Industries, Inc. (2)

      4.1               Common Stock Specimen (3)

      4.2               Warrant Specimen (3)

      4.3               Warrant Agreement (3)

      4.4               Credit Agreement, dated as of April 30, 1996, among IVC
                        Industries, Inc., the Bank's party thereto and The Chase
                        Manhattan Bank (National Association), as Agent (2)

      4.5               Guaranty, dated as of April 30, 1996, by the Guarantor
                        (2)

      4.6               Guaranty Reimbursement Agreement, dated as of April 30,
                        1996, by IVC Industries, Inc., International Vitamin
                        Overseas Sales Corp. and Hall Laboratories, Ltd., in
                        favor of the Guarantor (2)

      4.7               Letter of Credit Reimbursement Agreement, dated as of
                        April 30, 1996, by and between IVC Industries, Inc.,
                        International Vitamin Overseas Sales Corp. and The Chase
                        Manhattan Bank (National Association) (2)

      4.8               Subordination and Intercreditor Agreement, dated as of
                        April 30, 1996, by the Guarantor, The Chase Manhattan
                        Bank (National Association), IVC Industries, Inc.,
                        International Vitamin Overseas Sales Corp. and Hall
                        Laboratories, Ltd. (2)


                                       33
<PAGE>

      4.9               Security Agreement, dated as of April 30, 1996, by IVC
                        Industries, Inc., in favor of the Guarantor (2)

      4.10              Security Agreement, dated as of April 30, 1996, by
                        International Vitamin Overseas Sales Corp., in favor of
                        the Guarantor (2)

      4.11              Security Agreement, dated as of April 30, 1996, by Hall
                        Laboratories, Ltd., in favor of the Guarantor (2)

      4.12              Trademark Collateral Assignment Agreement, dated as of
                        April 30, 1996, by IVC Industries, Inc. (2)

      4.13              Guaranty and Security Agreement, dated as of May 10,
                        1996, by IVC Industries, Inc., in favor of the Guarantor
                        (5)

      4.14              Guaranty and Security Agreement, dated as of May 10,
                        1996, by International Vitamin Overseas Sales Corp., in
                        favor of the Guarantor (5)

      4.15              Guaranty and Security Agreement, dated as of May 10,
                        1996, by Hall Laboratories, Ltd., in favor of the
                        Guarantor (5)

      4.16              Trademark Collateral Assignment Agreement, dated as of
                        May 10, 1996, by IVC Industries, Inc. (5)

      4.17              Term Loan Agreement, dated as of May 1, 1998, among IVC
                        Industries, Inc., the Banks party thereto, and The Chase
                        Manhattan Bank, as Agent

      4.18              Term Guaranty, dated as of May 1, 1998, by the
                        Guarantor*

      4.19              Term Guaranty, dated as of May 1, 1998, by Vitamin
                        Specialties Corp., as Guarantor

      4.20              Term Security Agreement, dated as of May 1, 1998, by
                        Vitamin Specialties Corp., in favor of The Chase
                        Manhattan Bank as Agent

      4.21              Term Guaranty, dated as of May 1, 1998, by International
                        Vitamin Overseas Sales Corp., as Guarantor

      4.22              Term Security Agreement, dated as of May 1, 1998, by IVC
                        Industries, Inc., International Vitamin Overseas Sales
                        Corp., and Hall Laboratories, Ltd., in favor of The
                        Chase Manhattan Bank as Agent

      4.23              Stock Pledge Agreement, dated as of May 1, 1998, by IVC
                        Industries, Inc. to The Chase Manhattan Bank as Pledgee


                                       34
<PAGE>

      4.24              Collateral Assignment of Store Leases, dated as of May
                        1, 1998, by IVC Industries, Inc., in favor of The Chase
                        Manhattan Bank as Agent

      4.25              Collateral Assignment of Store Leases, dated as of May
                        1, 1998, by Vitamin Specialties Corp., in favor of The
                        Chase Manhattan Bank as Agent

      4.26              Term Trademark Collateral Assignment, dated as of May 1,
                        1998, by IVC Industries, Inc. and Vitamin Specialties
                        Corp., to the Chase Manhattan Bank as Agent

      4.27              Assignment of Leases and Rents, dated as of May 1, 1998,
                        by IVC Industries, Inc. to The Chase Manhattan Bank as
                        Agent

      4.28              Term Intercreditor Agreement, dated as of May 1, 1998,
                        by and between the Guarantor, the Chase Manhattan Bank
                        as Agent, IVC Industries, Inc., International Vitamin
                        Overseas Sales Corp., Hall Laboratories Ltd., and
                        Vitamin Specialties Corp.*

      4.29              Amendment Agreement, dated as of May 1, 1998, among IVC
                        Industries Inc., International Vitamin Overseas Sales
                        Corp., Hall Laboratories, Ltd., Vitamin Specialties
                        Corp., the Banks party to the Revolving Credit 
                        Agreement, The Chase Manhattan Bank as Agent, and the 
                        Guarantor *

      4.30              Revolver Guaranty, dated as of May 1, 1998, by Vitamin
                        Specialties Corp. as Guarantor

      4.31              VSC Revolver Security Agreement, dated as of May 1,
                        1998, by Vitamin Specialties Corp., in favor of The
                        Chase Manhattan Bank as Agent

      4.32              Security Agreement, dated as of May 1, 1998, by Vitamin
                        Specialties Corp., in favor of the Guarantor *

      4.33              Stock Purchase Warrant, dated as of May 1, 1998, by IVC
                        Industries, Inc. *

      4.34              Registration Rights Agreement, dated as of May 1, 1998,
                        by and between IVC Industries, Inc. and the Guarantor *

      10.1              Registration Rights Agreement (4)

      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 


                                       35
<PAGE>

                        Baxter, Peter W. Schreiber, John H. Dettra, Jr. And 
                        Larry Corbridge (2)

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

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

      10.5              International Vitamin Corporation 1993 Stock Option Plan
                        (3)

      10.6              International Vitamin Corporation 1995 Stock Option Plan
                        (1)

      10.7              Non-Employee Directors' Stock Option Plan (6)

      10.8              Amendment to Employment Agreement with E. Joseph Edell

      10.9              Amendment to Employment Agreement with I. Alan
                        Hirschfeld

      10.10             Amendment to Employment Agreement with Andrew M.
                        Pinkowski

      10.11             Employment Agreement with E. Joseph Edell (4)

      10.12             Employment Agreement with Arthur S. Edell (3)

      10.13             Employment Agreement with Andrew M. Pinkowski (2)

      10.14             Employment Agreement with I. Alan Hirschfeld (4)

      10.15             Loan and Security Agreement with NatWest Bank, N.A. (4)

      10.16             Severance Agreement with Arthur S. Edell

      11                Earnings Per Share Computation (Page E-1)


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

      (2)   Incorporated herein by reference from the Form 8-K filed on May 14,
            1996.

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

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


                                       36
<PAGE>

      (5)   Incorporated herein by reference from Amendment 2 to the Form 8-K
            filed on May 14, 1996, which was filed on August 9, 1996.

      (6)   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.

(B)   Reports on Form 8-K

      None.


                                       37
<PAGE>

                                   SIGNATURES

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

                              IVC INDUSTRIES, INC.

Date: October 29, 1998                        By: /s/ E. Joseph Edell
                                                  ---------------------------
                                                      E. Joseph Edell
                                                      Chairman of the Board and
                                                      Chief Executive Officer

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

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


/s/ E. Joseph Edell             Chairman of the Board of          
--------------------------      Directors and Chief                 -----------
E. Joseph Edell                 Executive Officer                 


/s/ Andrew M. Pinkowski         Vice Chairman and Director        
--------------------------                                          -----------
Andrew M. Pinkowski                                               


/s/ I. Alan Hirschfeld          Executive Vice President,         
--------------------------      Chief Financial Officer             -----------
I. Alan Hirschfeld              and Director                      


/s/ Domenic N. Golato           Chief Accounting Officer and      
--------------------------      Acting Chief Financial Officer      -----------
Domenic N. Golato                                                 


/s/ Arthur S. Edell             Director                          
--------------------------                                          -----------
Arthur S. Edell                                                   


/s/ Dennis E. Groat             Director                          
--------------------------                                          -----------
Dennis E. Groat                                                   


                                       38
<PAGE>

/s/ David Popofsky              Director                          
--------------------------                                          -----------
David Popofsky                                                    


/s/ Dr. Mark S. Gold            Director                          
--------------------------                                          -----------
Dr. Mark S. Gold                                                  


/s/ Marc Z. Edell               Director                          
--------------------------                                          -----------
Marc Z. Edell                                                     


/s/ Mac Allen Culver III        Director                          
--------------------------                                          -----------
Mac Allen Culver III                                              


                                       39
<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 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years ended July 31, 1998, 1997 and 1996. 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 included
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 1997, and the results of their operations and
their cash flows for each of the three years in the period ended July 31, 1998
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, present fairly, in all material respects, the information
stated therein.

As discussed in Note 17 of the financial statements, the Company was in default
of certain financial covenants with respect to its loan agreements with a bank.
Therefore, all debt associated with these loan agreements are classified on the
balance sheet as current.

                                                  AMPER POLITZINER & MATTIA P.A.

October 28, 1998
Edison, New Jersey


                                      F-1
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                          AS AT JULY 31, 1998 AND 1997
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                                1998       1997
                                                                ----       ----
<S>                                                          <C>         <C>     
                            ASSETS
Current Assets:
    Cash and cash equivalents                                $  1,604    $    179
    Accounts receivable                                        11,725       8,280
    Inventories                                                37,389      31,185
    Due from related parties                                       95         132
    Deferred taxes                                              2,238       2,353
    Prepaid expenses                                            2,006       1,320
    Other current assets                                          979       1,001
                                                             --------    --------
        Total Current Assets                                   56,036      44,450

Property, Plant and Equipment - Net                            20,766      17,999

Due from related parties                                        1,876       1,895
Goodwill - Net                                                  1,773       1,867
Other Assets                                                      803       1,999
                                                             --------    --------

    Total Assets                                             $ 81,254    $ 68,210
                                                             ========    ========

               LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
    Current portion of long-term debt (Notes 6 and 17)       $ 22,749    $  1,434
    Current portion of capital lease payable                      134          --
    Current portion of deferred gain on building                   97          --
    Accounts payable                                           25,504      15,012
    Accrued expenses                                            3,003       3,648
                                                             --------    --------
        Total Current Liabilities                              51,487      20,094

    Long-Term Debt - Less current portion (Notes 6 and 17)      7,271      31,430
    Capital lease obligation                                    3,317          --
    Deferred gain on building sale                              1,109          --
    Deferred taxes                                                211         170
    Other Liabilities                                              99          99
                                                             --------    --------
         Total Liabilities                                     63,494      51,793
                                                             --------    --------

Shareholders' Equity:
    Preferred stock, no par, 2,000,000 shares authorized           --          --
    Common stock, $.01 par value, 25,000,000 shares
      authorized; 17,211,540 and 17,127,392 issued,
      respectively                                                172         171
    Additional paid-in capital                                 11,673      11,446
    Foreign currency translation adjustment
                                                                 (202)       (116)
    Retained earnings                                           6,117       4,970
    Less: Common stock in treasury at cost:  0 and 32,000
    shares at July 31, 1998 and 1997, respectively                 --         (54)
                                                             --------    --------
        Total Shareholders' Equity                             17,760      16,417
                                                             --------    --------

Total Liabilities and Shareholders' Equity                   $ 81,254    $ 68,210
                                                             ========    ========
</TABLE>

                 See notes to consolidated financial statemets.


                                      F-2
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                   1998          1997          1996
                                               -----------   -----------   -----------
<S>                                            <C>           <C>           <C>        
Net sales                                      $   119,775   $   108,531   $   104,159

Cost of sales                                       91,256        80,480        77,086
                                               -----------   -----------   -----------

Gross profit                                        28,519        28,051        27,073

Selling, general and administrative expenses        25,035        23,628        22,350

Merger and integration costs                            --            --         3,183
                                               -----------   -----------   -----------

Income from operations                               3,484         4,423         1,540

Other expenses, net                                  1,572         1,639           818
                                               -----------   -----------   -----------

Income before income taxes                           1,912         2,784           722

Income tax provision                                   765         1,438           426
                                               -----------   -----------   -----------

Net income                                     $     1,147   $     1,346   $       296
                                               ===========   ===========   ===========

Net income per share - Basic                   $       .07   $       .08   $       .02
                                               ===========   ===========   ===========

Net income per share - Diluted                 $       .07   $       .08   $       .02
                                               ===========   ===========   ===========

Weighted average shares - Basic                 17,145,530    17,091,159    17,084,726

Weighted average shares - Diluted               17,234,920    17,130,777    17,218,389
</TABLE>

                 See notes to consolidated financial statemets.


                                      F-3
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                                 1998       1997        1996
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                  $  1,147    $  1,346    $    296
                                                              --------    --------    --------
  Adjustments to reconcile net income to net cash (used
    in) operating activities:
    Depreciation                                                 2,464       2,105       1,617
    Amortization                                                   130          21         167
    Deferred income taxes (benefit)                                156        (321)       (642)
    Stock distributed to Employee Savings Plan                     226          63          --
    Stock option issued to non-employee directors                   55          38          --
    Conversion of stock appreciation rights to common stock         --          --       2,243
    (Gain) loss on sale of assets                                 (683)       (138)         41
    Changes in assets - (increase) decrease:
      Accounts receivable                                       (3,445)      7,940      (8,112)
      Inventories                                               (6,204)     (5,140)     (7,142)
      Prepaid expenses and other current assets                   (664)       (506)        249
      Other assets                                               1,196        (398)       (632)
    Changes in liabilities - increase (decrease):
      Accounts payable and accrued expenses                      9,847      (3,968)      9,031
                                                              --------    --------    --------
        Total adjustments                                        3,078        (304)     (3,180)
                                                              --------    --------    --------
      Net Cash Provided (Used) By Operating Activities           4,225       1,042      (2,884)
                                                              --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for notes receivable                                     56        (568)         --
  Additions to property, plant and equipment                    (3,715)     (1,120)     (3,547)
  Proceeds from sale of assets                                   3,874         138         244
  Purchase of Vitamin Specialties assets                           (86)     (2,800)         --
                                                              --------    --------    --------
        Net Cash (Used) By Investment Activities                   129      (4,350)     (3,303)
                                                              --------    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on long-term debt - net                    (6,343)    (33,936)    (43,528)
  Proceeds from long-term debt                                   3,500      37,074      52,350
  Acquisition of treasury shares                                    --         (54)         --
  Proceeds from notes payable - banks                               --          --      31,230
  Principal payments on notes payable - banks                       --          --     (34,048)
  Proceeds from exercise of stock options                           --          --          24
                                                              --------    --------    --------
        Net Cash Provided By Financing Activities               (2,843)      3,084       6,028
                                                              --------    --------    --------
  Foreign currency translation adjustment                          (86)        (17)         50
                                                              --------    --------    --------

NET INCREASE (DECREASE) IN CASH                                  1,425        (241)       (109)
CASH AND CASH EQUIVALENTS - BEGINNING                              179         420         529
                                                              --------    --------    --------
CASH AND CASH EQUIVALENTS - ENDING                            $  1,604    $    179    $    420
                                                              ========    ========    ========
</TABLE>

                 See notes to consolidated financial statemets.


                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                                                                1998         1997        1996
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest                                                  $  2,210    $  2,075    $  1,325
                                                              ========    ========    ========
    Taxes                                                     $  1,436    $    811    $    752
                                                              ========    ========    ========
</TABLE>

Non Cash Financing Activities

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

                 See notes to consolidated financial statemets.


                                      F-5
<PAGE>

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                For the Years Ended July 31, 1998, 1997 and 1996
        (Dollars in Thousands, Except as Noted or Per Share Information)

<TABLE>
<CAPTION>
                                                                                                              Foreign
                             Common        Treasury                              Additional                 Currency
                              Stock         Stock        Common       Treasury    Paid-In      Retained    Translation
                            (Shares)       (Shares)      Stock         Stock      Capital      Earnings     Adjustment      Total
                            --------       --------      -----         -----      -------      --------     ----------      -----
<S>                         <C>             <C>       <C>          <C>           <C>          <C>          <C>           <C>       
Balance - July 31, 1995     1,078,742           --    $      171   $       --    $    9,078   $    3,328   $     (149)   $   12,428

Conversion of Stock
  Appreciation Rights              --           --            --           --         2,243           --           --         2,243

Exercise of stock options      16,000           --            --           --            24           --           --            24

Net income                         --           --            --           --            --          296           --           296

Foreign currency
  translation Adjustment           --           --            --           --            --           --           50            50
                           ----------   ----------    ----------   ----------    ----------   ----------   ----------    ----------

Balance - July 31, 1996    17,094,742           --           171           --        11,345        3,624          (99)       15,041

Purchase of treasury
  shares                           --      (32,000)           --          (54)           --           --           --           (54)

Issuance of shares to
  employee benefit plan        32,650           --            --           --            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    17,127,392      (32,000)          171          (54)       11,446        4,970         (116)       16,417

Issuance of treasury
  shares to employee benefit
  plan                             --       32,000            --           54            --           --           --            54

Issuance of shares to
  employee benefit plan        84,148           --             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     7,211,540           --    $      172   $       --    $   11,673   $    6,117   $     (202)   $   17,760
                           ==========   ==========    ==========   ==========    ==========   ==========   ==========    ==========
</TABLE>

                 See notes to consolidated financial statemets.


                                      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  -  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, as
      well as sales through its own retail stores and mail order operation. Its
      products are distributed under the Fields of Nature, LiquaFil, Rybutol,
      Nature's Wonder, American Vitamin(R), Synergy Plus, Nature's Blend, Pine
      Bros. and Vitamin Specialties brands, as well as under the private labels
      of its retail chain store customers. Domestic sales approximate 96% of
      total sales.

      Principles of Consolidation

      The accompanying financial statements include the accounts of the Company
      and its wholly owned subsidiaries, Hall Laboratories Ltd. and Vitamin
      Specialties Corp. Financial data for all periods presented reflect the
      retroactive effects of the business combinations with Hall Laboratories,
      Inc. ("Hall") on April 30, 1996 accounted for as pooling of interests. The
      financial data also reflects the operations of Vitamin Specialties since
      the date of acquisition, June 13, 1997, accounted for as a purchase (see
      "Business Combinations"). All material intercompany transactions and
      balances have been eliminated.

      Foreign Currency Translation

      Assets and liabilities of the subsidiary 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 $471 in 1998 and 1997,
      respectively, representing deposits held by trustees in connection with
      payments for the current portion and interest on long-term debt.


                                      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 1997 the allowance for doubtful accounts was $1,108 and $831,
      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 15 years. Commencing August 1, 1998 the remaining
      goodwill will be amortized over 10 years on a straight-line basis.


                                      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 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.

      Impairment

      Certain long-term assets of the Company including goodwill are reviewed at
      least annually as to whether their carrying value has become impaired,
      pursuant to guidance established in Statement of Financial Accounting
      Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
      Assets and for Long-Lived Assets To Be Disposed Of." Management considers
      assets to be impaired if the carrying value exceeds the future projected
      cash flows from related operations (undiscounted and without interest
      charges). If impairment is deemed to exist, the assets will be written
      down to fair value or projected discounted cash flows from related
      operations. Management also re-evaluates the periods of amortization to
      determine whether subsequent events and circumstances warrant revised
      estimates of useful lives. As of July 31, 1998, management expects these
      assets to be fully recoverable.

      Revenue Recognition

      The Company recognizes revenue from product sales at the time of shipment,
      which is recorded net of estimated sales returns, discounts and
      allowances.

      Stock-Based Compensation

      FASB Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based
      Compensation", establishes a fair value based method of accounting for
      stock-based compensation plans and requires additional disclosures for
      those companies who elect not to adopt the new method of accounting, as
      permitted by SFAS 123. The Company will continue to account for employee
      purchase rights and stock options under APB Option No. 25, "Accounting for
      Stock Issued to Employees". SFAS No. 123 disclosures are effective in the
      accompanying financial statements.

      Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
      to Employees" (APB 25) and related interpretations provides for
      compensation costs to be measured as the amount by which the market price
      of the underlying stock exceeds the exercise price of the stock option at
      the date at which both the number of options granted and the exercise
      price are known. 


                                      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. SFAS No. 128 changed the
      computation, presentation and disclosure requirements for earnings per
      share. SFAS requires presentation of "basic" and "diluted" earnings per
      share. The adoption of SFAS No. 128 did not have a material impact on the
      Company's net income per share.

      Net income per share on common stock is computed on the basis of the
      weighted average number of common and common equivalent shares outstanding
      during each year. It is assumed that all dilutive stock options are
      exercised at the beginning of each year (or at the time of issuance, if
      later) and that the proceeds are used to purchase shares of the Company's
      common stock at the average market price during the year.

      Concentration of Cash Balances

      Periodically, the Company maintains cash balances in excess of the $100
      insured by the Federal Deposit Insurance Corporation (FDIC).

      Impact of Recently Issued Accounting Standards

      In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information
      About Capital Structure." Statement 129 continues the existing
      requirements to disclose the pertinent rights and privileges of all
      securities other than ordinary common stock but expands the number of
      companies subject to portions of its requirements. Specifically, the
      Statement requires all entities to provide the capital structure
      disclosures previously required by Accounting Principles Board Option 15.
      Companies that were exempt from the provisions of Opinion 15 will now need
      to make those disclosures. The Company has adopted SFAS 129 for the year
      ending July 31, 1998.


                                      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):

      In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
      Income", which establishes standards for reporting and display of
      comprehensive income, its components and accumulated balances.
      Comprehensive income is defined to include all changes in equity except
      those resulting from investments by owners and distribution to owners.
      Among other disclosures, SFAS No. 130 requires that all items that are
      required to be recognized under current accounting standards as components
      of comprehensive income be reported in a financial statement that is
      displayed with the same prominence as other financial statements.

      In July 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
      an Enterprise and Related Information", which supersedes SFAS No. 14,
      "Financial Reporting for Segments of a Business Enterprise", which
      establishes standards for the way that public enterprises report
      information about operating segments in annual financial statements and
      requires reporting of selected information about operating segments in
      interim financial statements issued to the public. It also establishes
      standards for disclosures regarding products and services, geographic
      areas and major customers. SFAS No. 131 defines operating segments as
      components of an enterprise about which separate financial information is
      available that is evaluated regularly by the chief operating decision
      maker in deciding how to allocate resources and in assessing performance.

      The above new standards, SFAS Nos. 130 and 131, are effective for
      financial statements for periods beginning after December 15, 1997 and
      require comparative information for earlier years to be restated. Due to
      the recent issuance of these standards, management has been unable to
      fully evaluate the impact, if any, they may have on future financial
      statement disclosures.

      In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures
      about Pensions and Other Postretirement Benefits". Statement No. 132
      modifies the disclosure requirements for pensions and other postretirement
      benefits, but does not change the measurement or recognition of those
      plans. The Company will adopt SFAS 132 for the year ended July 31, 1999.
      Adoption of this statement is not anticipated to have a material effect on
      the Company's financial position or results of operations.

      In March 1998, the American Institute of Certified Public Accountants
      ("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for
      the Costs of Computer Software Developed or Obtained for Internal Use".
      SOP No. 98-1 establishes standards for recording the costs of software for
      internal use. SOP No. 98-1 indicates that certain costs incurred in the
      development of software designated for internal use should be capitalized.
      All other associated costs should be expensed. The Company will adopt SOP
      98-1 in the fiscal year ending July 31, 1999. Adoption of this statement
      is not anticipated to have a material effect on the Company's financial
      position or results of operations.


                                      F-11
<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):

      In April 1998, The AICPA issued SOP No. 98-5, "Reporting on the Costs of
      Start-Up Activities". SOP 98-5 requires the costs of start-up activities
      and organization costs to be expensed as incurred. It defines start-up
      activities as one-time activities related to opening a new facility,
      introducing a new product or service, conducting business in a new
      territory, conducting business with a new class of customer, indicating a
      new process in an existing facility, or commencing a new operation. The
      Company will adopt SOP 98-5 in the fiscal year ending July 31, 1999.
      Adoption of this statement is not anticipated to have a material effect on
      the Company's financial position or results of operations.

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
      Instruments and Hedging Activities". Statement No. 133 establishes
      accounting and reporting standards for derivative instruments and for
      hedging activities. It requires that an entity recognize all derivatives
      as either assets or liabilities and measure them at fair value. Under
      certain circumstances, the gains or losses from derivatives may be offset
      against those from the items the derivatives hedge against. The Company
      will adopt SFAS No. 133 in the fiscal year ending July 31, 1999.

      Reclassifications

      Certain reclassifications have been made to conform prior year amounts to
      the current year presentation.

      Advertising Costs

      Advertising costs are expensed as incurred. Such expense for the years
      ended July 31, 1998, 1997 and 1996 were $4.8, $5.6 and $5.2 million,
      respectively.


                                      F-12
<PAGE>

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

Note 2  -  Business Combinations:

      Vitamin Specialties

      On June 13, 1997, the Company acquired the assets of the Vitamin
      Specialties operations of HealthRite, Inc. for $2.8 million. 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 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 Vitamin Specialties are included in the
      financial statements since the date of acquisition.

      Operating results of the Vitamin Specialties operations since the date of
      acquisition are not considered material with regard to the fiscal year
      ended July 31, 1997.

      Hall Laboratories, Inc.

      On April 30, 1996, Hall, an Oregon corporation engaged in the
      manufacturing, packaging, sales and distribution of vitamins and
      nutritional supplements primarily on West Coast, was merged into the
      Company. Pursuant to the merger agreement executed in connection
      therewith, all of the outstanding equity shares of Hall, including Hall's
      Stock Appreciation Rights (SAR), were exchanged for 3,821,363 shares of
      the Company Common Stock. The accompanying consolidated financial
      statements for the periods prior to this transaction have been restated to
      present the combined financial position and operating results of the
      Company and Hall. Prior to the Hall merger, Hall had a fiscal year end of
      January 31 for financial reporting purposes. In the accompanying
      consolidated financial statements, information as it relates to Hall has
      been recast to conform to the Company's historical reporting periods.

      Operating results of the separate entities for the periods presented below
      are as follows:

                                                               Nine Months Ended
                                                                  April 30, 1996
                                                                  --------------
                                                                   (unaudited)
                     Net revenues:
                         IVC Industries, Inc.                     $     42,252
                         Hall Laboratories, Inc.                        34,628
                                                                  ------------
                         Combined                                 $     76,880
                                                                  ============

                     Net income (loss):
                         IVC Industries, Inc.                     $       (141)
                         Hall Laboratories, Inc.                           205
                                                                  ------------
                         Combined                                 $         64
                                                                  ============

      In connection with the Hall merger, the Company recognized merger and
      integration costs representing transaction expenses, compensation paid to
      certain Hall employees who held SARs and projected costs of integrating
      the business operations of the Companies.


                                      F-13
<PAGE>

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

Note 3 - Inventories:

                                                                  July 31,
                                                                  --------
                                                             1998         1997
                                                             ----         ----

                Finished goods                            $15,129       $16,697

                Bulk and Work in Process                   14,180         9,155

                Raw materials and Packaging Components      8,080         5,333
                                                          -------       -------

                Total inventory                           $37,389       $31,185
                                                          =======       =======

        The LIFO reserves at July 31, 1998 and 1997, were $0.

Note 4  -  Property, Plant and Equipment:

                                                                  July 31,
                                                                  --------
                                                             1998          1997
                                                             ----          ----

                Land                                       $ 1,451       $ 1,644

                Buildings and improvements                   6,951         7,451

                Capital lease building                       3,451            --

                Machinery and equipment                     19,262        17,717

                Leasehold improvements                         721           630

                Furniture and fixtures                       2,813         2,310
                                                           -------       -------
                                                            34,649        29,752

                Accumulated depreciation and amortization   13,883        11,753
                                                           -------       -------

                Net property, plant and equipment          $20,766       $17,999
                                                           =======       =======

      In July 1998, the Company entered into a sales-leaseback transaction at
      its 569 Halls Mill Road, Freehold, NJ location. The Company realized a
      total gain of approximately $1,900. 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 13), which was recorded as a
      capitalized lease. A deferred gain of approximately $1,200 was attributed
      to the warehouse/distribution center and will be recognized ratably over
      the life of the lease agreement. The gain of $683, attributable to the
      undeveloped land, was recognized and is reflected in other expenses, net.


                                      F-14
<PAGE>

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

Note 5 - Accrued Expenses:

                                                                    July 31,
                                                              ------------------
                                                              1998          1997
                                                              ----          ----

Accrued payroll and related                                $   725       $   870
Accrued interest                                               462           238
Income taxes payable                                           205           821
Accrued merger costs                                            --           450
Accrued brokerage                                              214           230
Accrued advertising                                            207           207
Other                                                        1,190           832
                                                           -------       -------

Accrued Expenses                                           $ 3,003       $ 3,648
                                                           =======       =======

Note 6 -  Long-Term Debt:

Long-term debt consists of the following:

                                                                  July 31,
                                                             -----------------
                                                             1998         1997
                                                             ----         ----

Notes payable to bank, under a $21.5 million 
  revolving line of credit, due March 31, 1999 
  (can be extended to August 31, 1999) (See Note 17)       $18,950       $21,475

Term loan payable to bank, due March 31, 1999 (can 
  be extended to August 31, 1999) (See Note 17)              2,250            --

Bonds payable, New Jersey Economic Development 
  Authority, interest at the floating tax-free rate 
  (3.45% at July 31, 1998), due May 1, 2003                  3,560         4,280

Bonds payable, New Jersey Economic Development 
  Authority, interest at 6.9%, due June 30, 2007             4,250         4,625

Term note payable to bank.  Paid in Full                        --         1,450

Equipment financing agreement, due June 30, 2002,
   interest at 8.25% - 8.50%                                   775           869

Other                                                          235           165
                                                           -------       -------

Total                                                       30,020        32,864

Less current portion                                        22,749         1,434
                                                           -------       -------

Long-Term Debt - Less current portion                      $ 7,271       $31,430
                                                           =======       =======


                                      F-15
<PAGE>

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

Note 6 -  Long-Term Debt - (Continued):

      Notes Payable to Bank

      On April 30, 1996, the Company entered into a credit agreement with a
      bank, which expires on March 31, 1999. The agreement can be extended under
      certain circumstances through August 31, 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 includes 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 as of July 31, 1998.
      (See Note 17).

      Term Loan Payable to Bank

      On May 1, 1998, the Company entered into a term loan agreement with a
      bank, which expires on March 31, 1999. The agreement can be extended under
      certain circumstances through August 31, 1999. The Company borrowed $3.5
      million under this agreement. The borrowings under this facility bear
      interest at the bank's prime rate, or at money market rates, or applicable
      LIBOR rates plus .50% (6.19% at July 31, 1998, based on 90 day LIBOR), at
      the Company's option. The loan is collateralized by substantially all of
      the Company's assets. The agreement with the bank requires prepayments of
      $500 on the 15th day of the last month of each calendar quarter. The
      Company is required to maintain certain financial ratios and tangible net
      worth, and the agreement contains various restrictions customary in such a
      financial agreement, including limitations on capital expenditures as of
      July 31, 1998. (See Note 17).


                                      F-16
<PAGE>

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

Note 6 -  Long-Term Debt - (Continued):

      Bonds Payable

      On October 5, 1995 the Company retired its $5.0 million term loan with a
      bank by utilizing the proceeds of a New Jersey Economic Development
      Authority tax exempt bond issue of the same amount. Interest on these
      bonds is payable based upon the weekly tax-free floating rate. The bonds
      called for interest only through May 1996. Thereafter, 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
      $4,250 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 $100 to $525 during the term of the mortgage through 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.

      Term Note Payable to Bank

      The term note payable to bank was secured by a mortgage on the Company's
      warehousing and distribution facility. This loan was paid in full in July
      1998 when the Company completed a sale/leaseback transaction for the
      warehouse and distribution facility.

      Equipment Financing Agreement

      The equipment financing agreement with a bank provides for up to $1.0
      million for acquisitions of computer and manufacturing equipment. This
      agreement calls for monthly payments of principal and interest at prime
      rate over a five-year period. At July 31, 1998, the Company had $225
      available for future equipment purchases.


                                      F-17
<PAGE>

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

Note 6 -  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 guaranty 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 (7.25% at July 31, 1998). 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, the
      outstanding balance was $155.

      The aggregate amount of long-term debt maturing in each of the five years
      subsequent to July 31, 1998 and thereafter is as follows:

                       1999                          $ 22,749
                       2000                             1,356
                       2001                             1,399
                       2002                             1,335
                       2003                             1,207
                       Thereafter                       1,974
                                                     --------

                       Total                         $ 30,020
                                                     ========


                                      F-18
<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,
                                                ------------------------------
                                                1998         1997         1996
                                                ----         ----         ----

            Current tax expense:
            Federal                           $   356      $ 1,273      $   839
            State                                  63          359          134
            Foreign                               191          127          131
                                              -------      -------      -------
                                                  610        1,759        1,104
                                              -------      -------      -------

            Deferred tax expense
            (benefit):
            Federal                                 3         (287)        (483)
            State                                 152          (34)        (159)
            Foreign                                --           --           --
                                              -------      -------      -------
                                                  155         (321)        (642)
                                              -------      -------      -------

            Other                                  --           --          (36)
                                              -------      -------      -------

            Income Tax Provision              $   765      $ 1,438      $   426
                                              =======      =======      =======

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

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

                                                          1998     1997     1996
                                                          ----     ----     ----

      Amount computed using statutory rate              $  650   $  975   $  244
      State taxes provision, net of federal benefit         42      250       88
      Effect of foreign income not subject to federal
      income tax                                            28       --       --
      Nondeductible costs                                   45      213       94
                                                        ------   ------   ------

      Income Tax Provision                              $  765   $1,438   $  426
                                                        ======   ======   ======


                                      F-19
<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 at July 31,
      1998 and 1997 are as follows:

                                                                  July 31,
                                                             ------------------
                                                              1998        1997
                                                              ----        ----

             Current assets and liabilities
                 Allowance for doubtful accounts             $   535    $   804
                 Inventory valuation (IRC 263A)                  671        390
                 Accrued expenses                                204        147
                 Accrued merger costs                             --        239
                 Net operating loss carryforward                  17         22
                 Inventory valuation allowance                   811        751
                                                             -------    -------
                                                               2,238      2,353
                 Valuation allowance                              --         --
                                                             -------    -------
                 Net current deferred tax asset              $ 2,238    $ 2,353
                                                             =======    =======

             Non-current assets and liabilities
                 Deferred gain on sale of land               $   468    $    --
                 Installment contract                           (222)      (232)
                 Property and equipment                         (538)       (42)
                 Other                                            81         87
                 Net operating loss carryforward                  --         17
                                                             -------    -------
                                                                (211)      (170)
                 Valuation allowance                              --         --
                                                             -------    -------
                 Net non-current deferred tax (liability)    $  (211)   $  (170)
                                                             =======    =======


                                      F-20
<PAGE>

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

Note 8  -  Other Expenses, Net:

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

                                                 1998        1997         1996
                                                 ----        ----         ----

              Interest expense                $ 2,555      $ 2,386      $ 1,579

              Rental income                      (220)        (332)        (203)

              Interest income                    (209)        (190)        (227)

              Gain on sale of land               (683)          --           --

              Gain on sale of contract
                  manufacturing division           --           --         (225)

              Other                               129         (225)        (106)
                                              -------      -------      -------

              Other expenses, net             $ 1,572      $ 1,639      $   818
                                              =======      =======      =======

      Interest expense for the years ended July 31, 1998 and 1996, excludes
      capitalized interest of approximately $75 relating to the renovation
      program at the Freehold facility and approximately $231 relating to the
      construction of the soft gel encapsulation facility, respectively.

Note 9 - Shareholders' Equity:

      In July 1995, the Board of Directors adopted the 1995 Stock Option Plan
      (the "1995 Option Plan") pursuant to which 1,000,000 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 2,000,000 shares.

      In April 1998, the shareholders approved the Non-Employee Directors' Stock
      Option Plan, pursuant to which 500,000 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 10,000 shares of IVC common stock, to
      each of IVC's non-employee directors. The plan terminates on March 16,
      2008.


                                      F-21
<PAGE>

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

Note 10  -  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 500,000, 2,000,000 and
      500,000 shares, respectively. The term of each option may not exceed ten
      years from the date of the grant (five years for options granted to
      employees owning more than 10% of the Company's voting stock).

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

<TABLE>
<CAPTION>
                                    1993            1995       Non-Employee   Other      Option Price
                                 Option Plan    Option Plan   Director Plan  Options         Range
                                 -----------    -----------   -------------  -------         -----
<S>                                <C>             <C>           <C>         <C>          <C>
Outstanding at July 31, 1995       460,000         100,000           --      100,000      $        --

   Granted                              --         161,984           --           --             3.31

   Canceled                             --              --           --           --               --

   Exercised                       (16,000)             --           --           --             1.50
                                  --------      ----------      -------     --------

Outstanding  at July 31, 1996      444,000         261,984           --      100,000

   Granted                              --         120,000       40,000           --      1.44 - 1.93

   Canceled                        (13,000)             --           --           --      1.50 - 2.38

   Exercised                            --              --           --           --
                                  --------      ----------      -------     --------

Outstanding  at July 31, 1997      431,000         381,984       40,000      100,000

   Granted                              --         129,000       50,000           --      1.97 - 2.34

   Canceled                             --         (50,000)          --     (100,000)     1.50 - 4.50

   Exercised                            --              --           --           --
                                  --------      ----------      -------     --------

Outstanding  at July 31, 1998      431,000         460,984       90,000           --
                                  ========      ==========      =======     ========

Options currently exercisable      431,000         400,707       90,000           --
                                  ========      ==========      =======     ========

Options available for grant at
July 31, 1998                       53,000       1,539,016      410,000           
                                  ========      ==========      =======
</TABLE>

      The weighted average fair value of options granted at fair market value
      was $1.12, $.91 and $1.52 where the exercise price equals stock price
      during the fiscal years ended July 31, 1998, 1997 and 1996, respectively,
      and $1.05 where the exercise price exceeded the stock price during fiscal
      year ended July 31, 1997.


                                      F-22
<PAGE>

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

Note 10  -  Stock Option Plans - (Continued):

      The table below summarizes information relating to options outstanding and
      exercisable at July 31, 1998:

<TABLE>
<CAPTION>
                               Options Outstanding                         Options Exercisable
                               -------------------                         -------------------
                                 Weighted-Average                                   Weighted-Average
         Exercise      Options      Exercise      Remaining Estimated    Options        Exercise
          Prices     Outstanding      Price          Life (Years)      Exercisable       Price
          -------    -----------      ------         ------------      -----------       ------
        <S>            <C>         <C>                   <C>            <C>            <C>
        $    1.44       40,000     $    1.44             8.8             40,000        $   1.44
             1.50      281,000          1.50              .4            281,000            1.50
             1.75       40,000          1.75             8.1             40,000            1.75
             1.88       30,000          1.88             8.8             30,000            1.88
             1.93       50,000          1.93             3.1             50,000            1.93
             1.97       89,000          1.97             9.0             89,000            1.97
             2.19       40,000          2.19             9.8                 --              --
             2.34       50,000          2.34             9.3             50,000            2.34
             2.61      200,000          2.61             2.0            200,000            2.61
             3.31      161,984          3.31             7.8            141,707            3.31
</TABLE>

      The fair value of options granted in the years ended July 31, 1998, 1997
      and 1996 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,
                                                           --------
                                               1998          1997          1996
                                               ----          ----          ----
                    Risk-free interest rate    6.3%          6.6%          6.3%
                    Expected volatility       52.4%         54.6%         42.1%
                    Dividend yield               0%            0%            0%
                    Expected life            5 years       5 years       5 years


                                      F-23
<PAGE>

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

Note 10  -  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 $121, $83 and $121 for
      the years ended July 31, 1998, 1997 and 1996, respectively. The Company's
      pro-forma net income and pro-forma net income per share for the years
      ended July 31, 1998, 1997 and 1996 would have been as follows:

                                                            Year Ended
                                                             July 31,
                                                             --------
                                                    1998        1997       1996
                                                    ----        ----       ----
             Net income:
             -------------------------------------------------------------------
                As reported                    $   1,147    $   1,346   $    296

                Pro-forma                          1,026        1,263        175

             Net income per share - Diluted:
             -------------------------------------------------------------------
                As reported                    $    0.07    $    0.08   $   0.02

                Pro-forma                           0.06         0.08       0.01

      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 11 - Employee Benefit Plan:

      Effective April 1, 1997, the Company adopted 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 $.5 per year. For the fiscal year ended
      July 31, 1998, the Company contributed $173 to the plan. For the fiscal
      year ended July 31, 1997, the Company contributed $117 to the plan,
      including fifty shares of its common stock to each employee at the Plan's
      inception.


                                      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  -  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, 1997 of
      $520 and $475, respectively, is payable by July 2000. Interest income
      earned on receivables from shareholders was approximately $42 and $29 for
      the years ended July 31, 1998 and 1997, respectively.

      The Company has advanced funds to certain employees. Interest charged is
      8%. The amounts due at July 31, 1998 and 1997 were $531 and $568,
      respectively. The amounts are payable by January 2000, and are
      collateralized by holdings in the Company. If the Company share price is
      below a stated amount the loan will be extended to April 2002.

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

      The Company advanced funds and sells products to Healthfair Vitamin
      Centers, Inc., a company wholly owned by Arthur and Ethel Edell. Sales to
      this affiliate were $104, $169 and $154 for the years ended July 31, 1998,
      1997 and 1996, respectively. The amount due from this affiliate including
      accounts receivable and advances, was $4, $4 and $6 at July 31, 1998, 1997
      and 1996, 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 President of
      the Company's International Division. These sales aggregated $491, $313
      and $389 for the years ended July 31, 1998, 1997 and 1996, respectively.
      Accounts receivable from these related parties aggregated $37, $102 and
      $274 at July 31, 1998, 1997 and 1996, respectively.

      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 $878
      at July 31, 1998 and 1997, 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 $78, $80 and $85 for the years ended July 31, 1998, 1997 and
      1996, respectively. The Company leases its manufacturing and
      administration facility in Portland, Oregon from Agora. Rent expense
      incurred by the Company for this property was $169, $163 and $161 for the
      years ended July 31, 1998, 1997 and 1996, respectively.


                                      F-25
<PAGE>

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

Note 13 - Commitments and Contingencies:

      Operating Leases

      The Company leases certain production and warehouse facilities, and
      conducts retail operations under long-term operating leases expiring in
      fiscal years through 2003. The leases provide that in addition to rent,
      the Company pay taxes, maintenance, insurance and other related expenses.
      Rent expense aggregated $1,305, $760 and $640 for the years ended July 31,
      1998, 1997 and 1996 , respectively. Future minimum lease payments due
      under these leases at July 31, 1998 are as follows: 

                              Year Ending
                               July 31,
                               --------
                                 1999                $  1,038
                                 2000                     693
                                 2001                     608
                                 2002                     378
                                 2003                     125
                                                     --------

                                 Total               $  2,842
                                                     ========

      Capital Leases

      In connection with the sale/leaseback transaction, the Company has entered
      into a capital lease for its warehouse and distribution facility, expiring
      in July 2008, with aggregate monthly payments of $5,265. 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, 1998:

                              Year Ending
                               July 31,
                               --------
                                 1999                $    422
                                 2000                     455
                                 2001                     488
                                 2002                     520
                                 2003                     520
                                 Thereafter             2,860
                                                     --------

               Total minimum lease payments          $  5,265
          Less amount representing interest            (1,814)
                                                     --------
Present value of net minimum lease payments             3,451
                    Less current maturities              (134)
                                                     --------
                       Long-term maturities          $  3,317
                                                     ========


                                      F-26
<PAGE>

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

Note 13  -  Commitments and Contingencies - (Continued):

      Employment Agreements:

      The Company has entered into employment agreements with certain of the
      Company's officers. The employment agreements provide for salaries
      aggregating $720 and $257 in fiscal 1999 and 2000, respectively.

      Some of the agreements with certain of the Company's officers are for one
      year and are automatically extended for successive one-year periods unless
      the Company or these executives give three month's 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 agreements, each of
      these executives is entitled to receive a severance payment equal to their
      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 $8.7 million
      related to the New Jersey Economic Development Authority borrowings.


                                      F-27
<PAGE>

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

Note 14  -  Major Customers:

      The Company sells its products to geographically diverse base of
      customers, primarily national and regional drug stores, mass merchandiser
      and supermarket chains. One customer accounted for 36% of net sales in the
      fiscal year ended July 31, 1998. One customer also accounted for 23% of
      net sales for the fiscal year ended July 31, 1997.

Note 15  -  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                                    332         536         702         (423)        1,147

   Net income per share - Basic                 0.02        0.03        0.04        (0.02)         0.07

   Net income per share - Diluted               0.02        0.03        0.04        (0.02)         0.07

July 31, 1997

   Net sales                                 $31,563     $27,267     $25,381     $ 24,320      $108,531

   Gross profit                                8,095       6,302       6,989        6,665        28,051

   Income (loss)from operations                1,883         729       1,091          720         4,423

   Net income (loss)                             872         391         337         (254)        1,346

   Net income (loss) per share - Basic          0.05        0.02        0.02        (0.01)         0.08

   Net income (loss) per share - Diluted        0.05        0.02        0.02        (0.01)         0.08
</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.


                                      F-28
<PAGE>

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

Note 16 - Year 2000

      In the past year, IVC Industries, Inc. invested in a complete replacement
      of its internal management information systems. The Company replaced its
      information technologies infrastructure with new enterprise servers,
      personal computers, local area networks and wide area networks.

      The Company's "Year 2000" (Y2K) compliant systems have been utilized in
      half of its facilities since the beginning of January 1998, with the
      remaining facilities scheduled to be integrated during the first quarter
      of calendar 1999. The Company's goal is to commence the second calendar
      quarter of 1999 with fully compliant systems enterprise-wide.

      As part of its Year 2000 - Compliance Program, the Company is contacting
      its vendors for assurance that they will be Y2K compliant.

      Satisfactorily addressing the Year 2000 issue is dependent upon 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 vendor or supplier fail to achieve Year 2000 compliance, the
      Company's business and its results of operations could be adversely
      affected.

Note 17 - Bank Debt

      The agreement with the bank requires the Company to maintain certain
      financial ratios and minimum working capital. At July 31, 1998, the
      Company was in violation of certain of these covenants, which have been
      waived by the bank. The Company classified the balance due to the bank as
      a current liability.


                                      F-29
<PAGE>

                                   SCHEDULE II

                      IVC INDUSTRIES, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE YEARS ENDED JULY 31, 1998 AND 1997
        (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>
               Goodwill - Net of
    1998       Accumulated Amortization            $  1,867    $     36    $    130            -           -      $  1,773
                                                   ========    ========    ========     ========    ========      ========

               Goodwill - Net of
    1997       Accumulated Amortization                   -    $  1,888    $     21            -           -      $  1,867
                                                   ========    ========    ========     ========    ========      ========

    1998       Allowance for Doubtful Accounts     $    831           -    $    277            -           -      $  1,108
                                                   ========    ========    ========     ========    ========      ========

    1997       Allowance for Doubtful Accounts     $    607           -    $    224            -           -      $    831
                                                   ========    ========    ========     ========    ========      ========
</TABLE>


                                       S-1